Eritreas Economy: Ideology and Opportunity

ERITREAS ECONOMY
Ideology and Opportunity
Seth Kaplan
ERITREAS ECONOMY
Ideology and Opportunity
Seth Kaplan
ISBN: 978-1-61977-459-9
Cover photo: Ghinda, Eritrea.
This report is written and published in accordance with the Atlantic Council Policy on Intellectual
Independence. The author is solely responsible for its analysis and recommendations. The Atlantic Council
and its donors do not determine, nor do they necessarily endorse or advocate for, any of this reports
conclusions.
December 2016
TABLE OF CONTENTS
Executive Summary.......................................................................................................... 1
Introduction........................................................................................................................ 3
Eritreas Vision.................................................................................................................... 5
The Limits of Ideology...................................................................................................... 6
Key Challenges................................................................................................................... 7
The Need for Incremental Change................................................................................ 15
One Way Forward............................................................................................................. 16
Strategic Opportunities................................................................................................... 18
Practical Advice for International Actors..................................................................... 21
Pragmatism and Self-Reliance........................................................................................ 22
About the Author.............................................................................................................. 24
ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY
EXECUTIVE SUMMARY
Eritrea is often in the news for all the wrong reasons:
its high rates of migration to Europe (it has sent more
refugees to Europe in recent years than any other
African nation), its conflicts with neighboring Ethiopia
and Djibouti, and controversy over its mandatory
and indefinite national service conscription program.
Human rights activists, in particular, have long singled
out the country for criticism, calling it the North Korea
of Africa. The inappropriateness of that comparison
is increasingly recognizedbut misunderstandings
about the nature of the Eritrean regime continue to
abound.
A substantive comparative analysis
of Eritrea and other socialist
nations will dispel many of the
myths of Eritrean exceptionalism,
in the worst sense of the word.
For all its idiosyncrasiesand it is
a unique country in many ways
Eritrea today looks a great deal
like pre-reform China, Vietnam
during the 1980s, and the pre-1989
communist countries of Eastern
Europe. If Eritreas political and
socioeconomic model resembles
any existing today, it is that of
Cuba, not North Korea.
At present, Eritreas most urgent economic priorities

include boosting state revenue and increasing
employment.2 The latter is essential if Asmara is
to continue updating its national service program.
National service plays a major role in building social
cohesion and throughout the period of no peace,
no war has effectively replaced
a large chunk of the labor market
(many of Eritreas civil servants,
teachers, waiters, and construction
workers, as well as soldiers, are
national
service
conscripts).
However, national service is also
the font of international criticism
of the country and the primary
driver of migration. The Eritrean
government has recognized the
need to normalize the national
service program by raising salaries
and setting a finite term of service,
but has dragged its feet on
implementing these reforms3 over
concerns about social stability
and maintaining the countrys
independence. (Reducing the term
of service to eighteen months
would release tens of thousands of
youth into the labor market with
few options for employmenta
recipe for social unrest.) Given these concerns, the
sequencing of economic restructuring will be crucial
but should also be conducted in a way that satisfies
the populations expectations, which have changed
significantly in one generation.4
. . . [I]nternational
attempts to
improve the living
conditions of
Eritreans are more
likely to succeed
. . . through
engagement that
starts with where
the country is now,
not where outside
actors think it
ought to be.
Like Cuba, Eritrea is not, and

does not desire to become, a
democracy. The experience of the
three-decade liberation struggle
has led the country instead to
embrace a highly egalitarian,
statist model. Like any other
system, this model involves trade-offs: It reduces
extreme poverty and promotes national unity, but
greatly limits civil liberties, international engagement,
and economic growth prospects. As a result of this
system of government, Eritrea shows no signs of the
violent ethnic conflict that has battered other countries
in the Horn of Africa (such as South Sudan, Somalia,
and Ethiopia). Nor has jihadism found a foothold in the
country. Nonetheless, Eritreans have suffered greatly
from human rights abuses and the lack of economic
opportunity. These factors are driving many young
people to leave the country or to express hopelessness
about the future.
Given this context, international attempts to improve
the living conditions of Eritreans are more likely to
succeed if they are conducted in the same way as
ATLANTIC COUNCIL
they are in Cuba: through engagement that starts

with where the country is now, not where outside
actors think it ought to be.1 The purpose of this report,
therefore, is to explore a pragmatic way forward for
the Eritrean economy given the leaderships current
worldview.
1
2
This report is based on a combination of desk research and a

visit to the country in March 2016.
African Development Bank Group (AfDB), Eritrea Interim
Country Strategy Paper (I-CSP) 2014-2016 (Abidjan, Cte
dIvoire: AfDB, East Africa Regional Centre, September 2014);
author interviews in Asmara, March 2016.
Senior Eritrean government officials also tend to dislike the
use of the term reform, and prefer the phrase evolution or
development, which they consider less pejorative. Author
interviews in Asmara, March 2016.
Richard Reid, The Politics of Silence: Interpreting Stasis in
Contemporary Eritrea, Review of African Political Economy 36
(2009): 210.
Eritrea can learn much from the successful reform

processes undertaken by countries with similar
ideologiessuch as Rwanda and Chinaand this
report will include those comparative analyses. Eritrea,
in many ways, is further along in its economic evolution
than Cuba is today, and bears some resemblance
to China early in its reform era (late 1980s to early
1990s) as well as Hungary in the 1970s and 1980s.
These countries all sought to open up in ways that
promoted social cohesion, self-reliance, and national
strength; all prioritized nation-building and saw
economic inclusiveness as essential to the process;
and all sought local solutions and models to guide

their decision-making processes and policies. In the
face of myriad challenges, they all recognized the need
for pragmatism and all asserted that the Western way
was not the only way.5 To move forward, Eritrea would
do well to study the strategies undertaken by those
states.
John McKay, The Asian Miracle after the Global Financial

Crisis: Some Lessons for Africa, Brenthurst Foundation
Discussion Paper 2010/07, December 2010.
ATLANTIC COUNCIL
INTRODUCTION
Eritreas socioeconomic model is an outgrowth of its
thirty-year guerrilla-style war to achieve independence
from Ethiopia, which shaped the thinking of President
Isaias Afwerki and his advisers. Eritreas independence
was a victory against seemingly impossible odds,
and it was achieved without any meaningful outside
assistance. The birth of the Eritrean state resulted
entirely from the tenacity, resilience, and keen
organizational skills of the Eritrean Peoples Liberation
Front (EPLF), which continues to run the country
today as the Peoples Front for Democracy and Justice
(PFDJ). Individual fighters, who still predominate at
the two highest levels of government,6 were intensely
loyal to the cause and driven by a strong 1960s-70sstyle leftist ideology.7
Eritrean people, without which it could not have won

the war.
Although Marxism was eventually abandoned in favor
of a revolutionary leftist nationalism,9 some of the
key values held by the PFDJ today certainly echo the
Marxist ideology that spurred the EPLF movement
early on (and which continues to strongly inform
countries such as Cuba).10 In a 1992 book on the retreat
of Marxism in Africa, Christopher Clapham speculates:
Eritrea may yet emerge as the one remaining bastion
of Leninism in the region, even if the ideology is
not explicitly adhered to, for reasons of external
acceptability.11
After independence, the EPLF
was confronted with the task of
building an Eritrean state from
scratch with limited resources.
The movement enjoyed a brief
honeymoon period after the
independence referendum in 1993,
during which Eritrea was lionized
internationally
and
received
some significant development
support from abroad. But Eritreas
development was interrupted
by the 19982000 border war
with Ethiopia over the flashpoint
town of Badme, the introduction
of a separate currency, and other
disagreements. That war ended when both Eritrea
and Ethiopia agreed to arbitration of the dispute by
an international boundary commission. However,
when the commission awarded Badme and other
parts of the border to Eritrea, the unwillingness of
Western governments to enforce the arbitration
decision caused relations with the West to deteriorate
significantly. The Eritrean governments failure to enact
its democratic constitution and a harsh crackdown
on political dissent in 2001 further alienated Western
The birth of the

Eritrean state
resulted entirely
from the tenacity,
resilience, and keen
organizational skills
of the Eritrean
Peoples Liberation
Front (EPLF). . .
Although officially dropped in

the late 1980s, Marxism had a
significant influence on the EPLF
in its early years (late 1970s),
when it identified itself as part of
the socialist camp and viewed
the Soviet Union as a strategic
ally.8 The ideology provided a
focused political vision that helped
mobilize and unite the country in
its rebellion against the Ethiopian
Derg regime while offering crucial
lessons in organization; this
contributed to the success of
the EPLF as a movement. Social
engineeringsuch as the emancipation of women,
the provision of a basic education that instilled
revolutionary ideology, the deliberate subordination of
ethnic identities, and the banning of non-indigenous
religious ideologieswas crucial to the EPLFs ability
to win support and mobilize the full resources of the
Each of the countrys seventeen ministries has a minister and

roughly six deputy generals. Combined, the top two levels of
government (not including advisers and party officials, who
may be more important at times) total roughly 119 people, all
of whom are former liberation fighters, or tegadelti. Author
interviews in Asmara, March 2016.
Dan Connell, Inside the EPLF The Origins of the Peoples
Party & its Role in the Liberation of Eritrea, Eritrea Real Clear
Politicss Weblog, April 5, 2009, https://eritrearealclearpolitics.
wordpress.com/2009/04/05/inside-the-eplf-the-origins-ofthe-%E2%80%98people%E2%80%99s-party%E2%80%99-itsrole-in-the-liberation-of-eritrea/; Dan Connell, Eritrean Rebels
Prepare For Life After War and After Marxism, Christian
Science Monitor, November 15, 1990, http://www.csmonitor.
com/1990/1115/oerit.html.
Connell, Eritrean Rebels Prepare For Life After War and After
Marxism.
ATLANTIC COUNCIL
David OKane and Tricia Hepner, Biopolitics, Militarism, and

Development: Eritrea in the Twenty-First Century (New York:
Berghahn Books, 2009), xx.
10 The EPLF had rigid policies favoring state domination of
economic and political life enshrined in its official policy
documents as late as 1987. In 1990, Haile Woldensai, who was
the co-chair of the EPLFs Department of National Guidance,
admitted We were carried off by the revolutionary and
leftist upheavals that were the order of the day in the 1960s.
Connell, Eritrean Rebels Prepare For Life After Warand After
Marxism.
11 Christopher Clapham, The Socialist Experience in Ethiopia
and its Demise, in Marxisms Retreat from Africa, ed. Arnold
Hughes (New York: Routledge, 2015), 118.
Fresh vegetables for sale at a market in Keren, Eritrea. Photo credit: David Stanley/Flickr.
governments. Washingtons strong tilt toward Ethiopia

in the years since (due to its much larger size and
importance to regional security) soured the Eritrean
leaderships outlook toward international actors.12 This
view partly reflects the fact that Eritreans already
felt betrayed by the international community after a
number of events in their short history: The territory
was forced by the United Nations (UN) and United
States to become part of a federation with Ethiopia
in the early 1950s, and when Ethiopia unilaterally
abrogated the federal arrangement and annexed
Eritrea in 1962, no international organization, not the
UN, the United States, the Organization of African
Unity, or any other, protested.13
In the years following independence, Eritrea has

repeatedly been threatened by its larger neighbor
Ethiopia, a country with which it is in a state of no
peace, no war and that has roughly thirty times its
population (similar to the United States as compared
to Cuba).14 These threats may seem empty from afar
but are certainly not felt as such in Asmara, where it
is understood that even the slightest miscalculation
could have catastrophic effects. During the 19982000
conflict, Ethiopia penetrated deep into Eritrean
territory, occupying about a quarter of the countrys
land, displacing 650,000 people,15 and killing tens of
thousands of soldiers and civilians.16 The psychological
shock of these physical and diplomatic losses is still
viscerally feltnot only by the government, but also
by large segments of the population.
12 International Crisis Group (ICG), Eritrea: The Siege State,

Africa Report No. 163, September 21, 2010, 21.
13 Eritrea and the Right to Self-Determination, Review of African
Political Economy 25 (1982): 39-52. The article is an extract
from the Report of the Permanent Peoples Tribunal of the
International League for the Rights to Liberation of Peoples,
Milan, October 3, 1980.
14 Estimates of Eritreas population vary widely. The Eritrean

government most frequently cites a population of 3.5 million,
but independent sources suggest the number is less.
15 Eritrean, Ethiopian Exchange of POWs Begins, CNN,
December 23, 2000.
16 See, for instance, BBC, Eritrea Reveals Human Cost of War,
June 20, 2001, http://news.bbc.co.uk/2/hi/africa/1398446.stm.
ATLANTIC COUNCIL
ERITREAS VISION
These experiences taught the countrys leadership that
its future depends on the following:

Strengthening self-reliance. No outside actor has

proven itself dependable, and many have shown
that they are, in fact, unreliable partners. It is crucial
that the country is as self-reliant as possible and
dependent on no one. Eritreas universal military
service is an essential facet of this self-reliance
doctrine.
Sacrificing the needs of the individual for the
group and promoting social cohesion. An
enormous amount of sacrifice for the sake of the
country was essential to achieving and maintaining
independence, especially given the ongoing threat
from Ethiopia. Constructing a strong nation-state
depends on sharing the burden and promoting
social justice. Only by leveraging everyone in close
cooperation can great things be accomplished.
Economic development should occur in a way that
advances the state and society, not the reverse;
individual enrichment and entrepreneurship should
be viewed warily because they undermine social
cohesion.
Maintaining strong leadership. Unity is essential

to overcoming great challenges, and therefore
following a common position, as decided by the
head of the state, is essential.
Encouraging resilience. Backing down from

difficulties is unacceptable; instead, efforts should
be doubled to achieve ones goals.
Seeking local solutions. Eritreas problems are

best solved by its leaders, who led the country to
independence despite steep odds, and who know
its conditions best; experiences from abroad have
only limited applicability.
The PFDJ is similar to other leftist revolutionary

movements that emerged victorious from war
most notably the Chinese Communist Party and the
Communist Party of Vietnam, but also to some extent
the Tigrayan Peoples Liberation Front of Ethiopia
and the Rwandan Patriotic Front (both of which also
had early Marxist leanings). All of these movements
have evolved significantly from their ideological roots,
but even as the emphasis has shifted to building up
their states and developing their economies, they
have preserved key elements of Marxist thought.
Consequently, they have diverged somewhat from the
ATLANTIC COUNCIL
path promoted by Western development agencies

and the international community in general. This has
not been disastrous: they are all, with the exception
of Cuba (see box 1), more successful economically
than their peers. That success is partially rooted in the
strong organizational capacity and unity brought by
war, but it is also due to the maintenance of many of
Marxisms core ideas.
Box 1: Cubas Socioeconomic Model
Cuba has followed a distinctive socioeconomic model
since its revolution in 1959. Adhering to the example
of the Soviet Union and other communist countries,
it adopted a centrally planned, highly egalitarian
economic system that privileges state enterprises and
limits opportunities for private business. Investment is
restricted and must be approved by the government.
The country has consistently been ranked as one of
the worlds least economically free states.17 Shortages
of capital and weak growth have consistently plagued
the country, making it dependent on outside financial
assistance (from the Soviet Union until 1991 and from
Venezuela more recently).
Meanwhile, the Cuban government has put strong
emphasis on social development, investing heavily in
education, health care, and poverty reduction. This has
given the country a very low level of extreme poverty
and relatively high level of human development. It
ranked, for instance, 67 out of 188 countries on the
2014 Human Development Index, a composite statistic
of life expectancy, education, and income per capita
indicators.18
As in Eritrea, emigration has often been used by the
government as a political safety valve (in Eritrea, the
government increasingly recognizes that emigration
hurts the economy and capacity of institutions).
Youth that disagree with the governments policies
or crave greater economic opportunity are effectively
permitted to flee by boat or other means to the United
States, which offers political asylum to any Cuban who
reaches its territory. (Until recently, many European
states have similarly offered automatic asylum to
Eritreans.) Over one million Cubans have emigrated
to the United States over the years.19
17 The Heritage Foundation, Index of Economic Freedom,

published annually since 1995, http://www.heritage.org/index/.
18 United Nations Development Programme, Human
Development Index, http://hdr.undp.org/en/composite/HDI.
19 This figure includes those that came before the revolution, i.e.,
all foreign-born Cubans in the United States. See Sylvia Rusin,
Jie Zong, and Jeanne Batalova, Cuban Immigrants in the United
States, Migration Policy Institute, April 7, 2015, http://www.
migrationpolicy.org/article/cuban-immigrants-united-states.
THE LIMITS OF IDEOLOGY

Eritrea does not recognize its kinship to any of these
regimes. Revolutionary principles are so deeply
embedded in how the leadership thinks20infusing
everything from the national narrative to particular
decisions by policy makersthat few explicitly
articulate them as core principles in a comprehensive
fashion or acknowledge their ideological roots. In
contrast, details of Eritreas independence struggle
are cited over and over again. However, understanding
these core values and how they influence the Eritrean
leaderships way of thinking is essential for anyone
who seeks to recognize the logic behind the choices
the country has madeor to
formulate a creative set of policy
proposals for how it might move
forward.
Of course, not every choice the
Eritrean government makes is
consistent. Some policies are mere
reactions to difficult challenges,
or the product of inexperience
and the limited capacity of many
institutions. Eritreas population is
small (probably around 3.5 million
people), and migration, defections,
and arrests have depleted its
human resources, draining talent
from the senior but especially
the middle and lower ranks of the
administration.
Though many of the PFDJs economic policies have

been reactive, the party has generally adhered very
rigidly to its ideology when making religious decisions.
Eritrea has pursued its particular socioeconomic
model because its leadership has been unbendingly
committed to the set of values outlined above. In
consequence, the country has adhered much more
to its socialist roots than its counterparts elsewhere
havewith the exception of Cuba
with both positive and negative
consequences. Dynamism has, in
effect, been traded for inclusive
social development. Assuming
that the statistics released by the
government are correct, Eritrea
has certainly made more progress
on the Millennium Development
Goals (MDGs) than most of the
African countries that adhere
more closely to the Western
capitalist model: 21 Eritrea has
already achieved six of the eight
MDGs.22 Yet, the PFDJ may be
able to strike a more effective
balance by adopting the practices
of similar ruling parties elsewhere,
such as those in China, Vietnam,
and Rwanda. These governments
have been more pragmatic,
and have managed to proactively use markets and
market-based incentives as well as international trade
and partnerships to develop their countries while still
maintaining a focus on some important socialist goals.
. . . [T]he PFDJ
may be able to
strike a more
effective balance
by adopting the
practices of similar
ruling parties
elsewhere, such
as those in China,
Vietnam, and
Rwanda.
Eritrea has long ignored (or

arguably, due to the ongoing state of no peace, no
war with Ethiopia, been forced to ignore) the strong
relationship between economic growth and selfreliance. But ultimately, the acceleration of Eritreas
economic development is the best form of defense.
A rising gross domestic product (GDP) would allow
increased investment in Eritreas military resources,
and trade partnerships would enhance Eritreas
diplomatic clout. Greater economic opportunity would
20 The ethos of the armed struggle permeates all aspects of
public life. ICG, Eritrea, 9.
also help retain more of the countrys best human

resourcesperhaps the most critical element for
securing Eritreas future.
21 AfDB, Africas Recent MDG Performance, http://www.afdb.

org/en/topics-and-sectors/topics/millennium-developmentgoals-mdgs/africa%E2%80%99s-recent-mdg-performance/.
22 AfDB, Eritrea Interim Country Strategy Paper (I-CSP) 20142016, 8.
ATLANTIC COUNCIL
KEY CHALLENGES
Eritreas prolonged national service and high levels of
emigration are, to some extent, products of a larger
economic malaise. Indeed, the countrys financial woes
have consistently hampered its broader security and
development agenda. Boosting state revenue and
employment opportunities are the countrys two most
pressing economic problems, and they are interrelated:
many of the ways to resolve one would help resolve
the other.
FINANCIAL DIFFICULTIES
Reliable data on Eritreas economy are scarce, due
to the governments refusal to release even the most
basic statistics such as population and GDP figures.
Nonetheless, there are a number of international
estimates available, most notably those from the
African Development Bank (AfDB). These estimates
universally show the country to be in difficult financial
straits. Comments made by the governments own
ministers during a recent visit to the country support
this conclusion.
A number of problems were obvious during the
authors visit to Eritrea: government officials talked
openly about the challenges of ensuring that the
country had enough money to pay for essential
imports; blackouts were common (possibly due to
a shortage of oil imports); private businesspeople
complained about the difficulties involved in getting
permission to import goods, even when the goods
were legal and to be purchased with foreign currency;
and officials expressed concerns about the solvency of
the banking system. Reports on the country repeatedly
mention foreign currency shortages hampering
businesses ability to import essential machinery and
equipment.23 In response to its financial difficulties, in
November 2015, the government took the dramatic
and controversial step of recalling and replacing the
official currency in order to direct more domestic and
international trade through the banking system. This
move was most likely due to a growing black market
and informal economy that was draining money from
the financial system and costing the government
significant income in tax revenue.
Eritrea has few exports and thus consistently runs a
large trade deficit. Given the little foreign investment
it receives, the government must depend on
remittances and debt to purchase imports (see chart
2). Remittances, in particular, have long been a major
23 AfDB, Eritrea Interim Country Strategy Paper (I-CSP) 20142016, 2 and 5.
ATLANTIC COUNCIL
source of cash for Eritrea, peaking at as much as onethird of GDP in the early 2000s before declining to
one-sixth of GDP in 2008 and less more recently.24
Eritreas foreign reserves covered less than one month
of imports almost continuously from the time of the
1998 border war until 2007. Although reserves have
since climbed from $58 million in 2008 to over $200
million in 2014,25 due in part to the opening of the Bisha
mine,26 reserves have rarely, if ever, climbed above
the amount required for three months of imports,
the internationally recommended minimum (they
generally hover at a number between two and three
months now).27 Such a low level of foreign reserves
leaves the country susceptible to any crisis that might
affect its finances. Since 2007, however, imports have
almost doubled, a sign that the economy is at least in
better, if not good, health when compared with the
decade after the war ended.
The success of the Bisha mine, a joint venture between
the Eritrean government and Canadas Nevsun
Resources Ltd., has significantly improved Eritreas
financial situation, but has not been sufficient by itself
to end the countrys financial problems. Following the
start of the mines production in 2011, exports rose
dramatically to $261 million, up from only $23 million
in 2010.28 By 2014, exports had climbed to about
$500 million (see chart 1).29 Before this spike, Eritrea
had one of the lowest ratios of exports to GDP in the
worlda measure of the countrys integration with
the international economyan astonishing statistic
given the small size of the country (smaller economies
typically have larger ratios).30 With the steep decline
24 Library of Congress, Federal Research Division, Country Profile:
Eritrea, September 2005; AfDB, Eritrea Interim Country
Strategy Paper (I-CSP) 2014-2016, 3.
25 EIU, Country Report, 2016, p. 6; EIU, Country Report:
Eritrea, April 29, 2013, 5.
26 The AfDB Data Portal says the current account is roughly
balanced. See AfDB Data Portal. But the EIU says the country
still has a large deficit. See EIU, Country Report, 2016, 6.
27 Import Cover, The Economist, August 12, 2010, http://www.
economist.com/node/16793524.
28 AfDB Data Portal, http://dataportal.afdb.org/. The report
Eritrea Interim Country Strategy Paper (I-CSP) 2014-2016
offers different numbers, but the same trend; see page 4.
29 The Economist Intelligence Unit estimates $493.6 million
whereas the AfDB estimates $599 million. Nevsun, whose only
asset in 2014 was the Bisha mine, had revenue of $555 million
for the year, but not all of this may have been included in the
export figures. EIU, Country Report: Eritrea, February 11,
2016, 6; AfDB Data Portal; http://www.nevsun.com/news/2015/
february26/.
30 AfDB, EritreaInterim Country Strategy Paper (I-CSP) 20142016, 4, footnote 7.
Figure 1. Eritreas Exports, Imports, and Trade

Balance
35
30
25
20
15
Percent
10
5
0
-5
-10
-15
2015
2012
-20
2011
2013
2014
-25
2010
-30
2009
-35
Imports of goods
Exports of goods
Trade balance
2008
Source: Economist Intelligence Unit (EIU), Country Report,

2016,6; EIU, Country Report: Eritrea, 2013, 5.
Figure 2. Eritreas 2014 Imports (Excluding OIl)

Other 8.4%
Textiles 5%
Machines 25%
Animal and Vegetable

Bi-Products 5.2%
Plastics and Rubbers 7.3%
20092011 before dropping as revenue from the Bisha

mine kicked in (see chart 3). The external debttoGDP
ratio hovered around 60 percent from 2002 until 2008,
near the upward limit of what would be considered a
safe level (40 percent is recommended for developing
countries),33 limiting the governments flexibility and
surely making it somewhat uncomfortable given
its strong emphasis on self-reliance. The ratio has
since fallen sharply and is now around 20 percent.34
Servicing the debt required a dangerously high level of
44 percent of exports in 2003, and still accounted for
one-third of exports as late as 2010. With the opening
of the Bisha mine, debt servicing fell to only 7 percent
of exports in 2014.35
Internal debt, however, still remains a major problem.
The government is estimated to have a highly
unsustainable public debt burden, estimated at 108
percent of GDP in 2015, making it among the most
heavily indebted countries in the world (see chart
4).36 This figure, which combines international and
domestic debt, has declined from earlier peaks but
still signifies the countrys weak financial position.
Such debt is a significant drag on the economy, as
government borrowing limits the availability of credit
to private business.
High government deficits, partially the result of
significant defense spending, contribute to these high
debt figures. According to the Economist Intelligence
Unit, fiscal deficits averaged a whopping 16 percent
of GDP between 2005 and 2015. There has been a
modest decline in deficits since Bisha opened and
brought an increase in revenue, but the figure remains
around 12 percent (see chart 5).37
Metals 7.6%
Chemical Products 12%
Vegetable Products 8.7%

Foodstuffs 9.8%
Transportation 11%
This data source is not capturing the countrys oil and gas imports,
possibly because they are not purchased or reported through
regular international trade channels. The country, for instance,
mainly depended on Libyan gifts of oil before 2011.
Alexander Simoes, Eritrea, Observatory of Economic Complexity.
in mineral prices after 2013, export earnings are now

probably declining.31 The price of copper, which made
up 94 percent of total Eritrean exports in 2014, has
fallen by more than half since 2013.32
Eritreas total external public debt climbed consistently
throughout the 2000s, reaching over $1 billion in
31 The EIU estimated in early 2016 that Eritreas exports dropped by
16 percent to $413 million in 2015. EIU, Country Report, 2016, 6.
32 See Alexander Simoes, Eritrea, Observatory of Economic
Complexity, http://atlas.media.mit.edu/en/profile/country/eri/.
Consistent deficits have produced consistently high

inflation; when the government prints money to pay
its bills, it increases the money supply faster than it
should. Inflation has been in double digits since at
least the early 2000s, peaking at about 20 percent
33 AfDB, Eritrea Interim Country Strategy Paper (I-CSP) 20142016, 4, footnote 6.

34 These figures are derived from a combination of the AfDB Data
Portal and the two EIU reports.
35 AfDB Data Portal, accessed May 15, 2016.
36 EIU, Country Report, 2016, 12. The International Monetary
Fund shows an even worse situation in its October 2014 World
Economic Outlook (WEO) database. See Global Finance,
Eritrea GDP and Economic Data, https://www.gfmag.com/
global-data/country-data/eritrea-gdp-country-report. Public
debt differs from gross debt, which appears in chart 4. The
two numbers come from different sources, which may also be
making estimates based on different information.
37 EIU, Country Report, 2016, 12. The IMFs WEO shows similar
numbers. See Global Finance, Eritrea GDP and Economic Data.
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Figure 3. International Financial Position

70
in 20082011 before dropping to around 12 percent in

2014.38
External debt (% of GDP)

External debt service (% of exports)
60
Current account balance (% of GDP)
50
Percent
40
30
20
10
0
-10
2011
2008
2009
-20
2012
2013
2010
2014
Source: World Economic Outlook Database, http://www.imf.org/

external/pubs/ft/weo/2016/01/weodata/index.aspx.
Figure 4. Eritreas Gross Debt

200
Such reform is not only painful to the public, but

is unsustainable if it does not address the main
underlying cause of the problem: Eritreas fiscal deficit
requires it to print money to pay its bills.
Percent
150
ISOLATION AND THE SANCTIONS

REGIME
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015

Figure 5. Eritreas Public Finance

2014
Government
revenue (% of GDP)
Government expenditure (% of GDP)
40
Fiscal balance (% of GDP)
30
20
10
Percent
These dynamics made the nakfa (Eritreas currency),

which has been pegged to the US dollar since 2005,
heavily overvalued.39 This overvaluation creates large
incentives for traders to operate illicitlythe black
market exchange rate was more than three times
the official rate in 2015which, in turn, feeds foreign
currency shortages. The governments attempt to
address the nakfas overvaluation by introducing a new
legal tender in November 2015 reduced the value of
the notes in circulation by as much as three-fifths40an
undoubtedly large blow to the private sector. Demand
for goods and services has significantly declined in
the months since the new tender was introduced.
Businesspeoplewhether they drive a taxi, manage a
retail store, run a restaurant, or own a hotelbitterly
complain about the currency change.
-10
2009
-20
2010
2011
2012
2013
2014
2015
2008

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More foreign direct investment (FDI) and international

partnerships could alleviate many of these problems
by increasing exports (at least in the case of FDI) and
revenue. But whereas per capita official development
assistance has fluctuated in a range between very low
and modestly below average for Africa, per capita
foreign direct investment in Eritrea has consistently
been very far below average for the continent.41 The
latter, for instance, has been under $10 per capita since
2011less than one-fifth the average for Africa as a
whole.42
Eritreas lack of interaction with the international
economywhether through investment, trade, or
cooperative arrangements with institutions such as the
African Development Bank, the European Union (EU),
and Chinaseverely limits the countrys ability to learn
and develop. Foreign investment, in particular, could
38 AfDB, Eritrea Interim Country Strategy Paper (I-CSP) 20142016. The 2014 number comes from EIU, Country Report,
2016, 6.
39 The black market exchange rate was in the mid-fifties
(stretching as high as sixty) before the reform and has been
in the low twenties (reaching as low as eighteen) since. The
official exchange rate is about 15.7 nakfa to one US dollar.
40 Author interviews in Asmara, March 2016.
41 Only Burundi, the Central African Republic, and Malawi did
worse in 2014. AfDB, Eritrea Interim Country Strategy Paper
(I-CSP) 2014-2016, 5.
42 AfDB, African Statistical Yearbook 2016 (Abidjan: AfDB, 2016), 67.
be used to bring new technology and expertise into

the country, especially with regard to financial services,
manufacturing, and world markets. The mining sector
is a promising example of what is possible (see box 4).
International sanctions, which were imposed in 2009,
play a major role in deterring international investment
in Eritrea. Economic conditions were difficult in the
years following the 19982000 war with Ethiopia and
the subsequent closure of the border. However, it is
important to note that investment rates in Eritrea
were consistently above 20 percent until 2005, when
the UN first threatened to sanction the country.43 At
that point, Eritreas relations with the outside world
began to deteriorate rapidly and youth started leaving
in large numbers. Since 2008, the private investment
rate has been between 2 and 3 percent of GDP, an
extraordinarily low figure.44 FDI per capita is among
the lowest in Africa, with only Burundi, the Central
African Republic, and Malawi doing worse in 2014.45
Given numerous alternatives, few companies will invest
in a country designated as a high political risk, unless
they have personal ties (the diaspora, for example)
or the desire to exploit an asset not found elsewhere
(mining companies, for example). Indeed, there are
occasional spikes in FDI driven by new investment
in the mining sector, but little outside interest in the
rest of the economy. Sanctions thus have significantly
weakened Eritreas economy, diminishing the quality
of life for its citizens in the process.
NATIONAL SERVICE AND POLITICAL RISK

Of course, national service also plays a role in these low
investment figures by creating a risk that any foreign
investor will be sued for using forced labor. Although
there are an ample number of workers in the free labor
market (Eritreans who have either completed and been
released from national service or have returned from
overseas), companies that choose to invest in Eritrea
must be continuously on guard for the problems that
national service causes. Potential employees must be
checked and double-checked to ensure that they have
genuinely finished their national service commitment.
Some specialist positions may be hard to fill because
43 The UN first threatened sanctions over the 2000 peace plan
with Ethiopia in late 2005; in August 2007, the United States
first threatened sanctions over the provision of arms and
supplies to armed groups in Somalia.
44 AfDB Data Portal, accessed May 17, 2016; AfDB, Eritrea
Interim Country Strategy Paper (I-CSP) 2014-2016,Annex
II. The country has had one of the lowest overall investment
rates in the world, consistently below 10 percent of GDP (the
only countries in Africa with comparable rates to Eritrea are
Swaziland and Guinea-Bissau). See IMF, World Economic
Outlook Database, January 2016, https://www.imf.org/external/
pubs/ft/weo/2016/01/weodata/index.aspx/.
45 AfDB, African Statistical Yearbook 2016, 67.
10
the government does not want to release conscripts

with valuable skills. The Eritrean government may also
require investors to use state-owned contractors for
building projects that are staffed by national service
conscripts.
Indeed, it is impossible to invest in Eritrea without
gaininghowever indirectlysome benefit from
national service. For example, infrastructure such as
roads have probably been built or at least repaired at
some point by a state-owned firm that uses national
service workers. Basic suppliesincluding possibly
food and gasolinemay have been produced or
imported with some involvement of national service
workers. Employees may have learned in school
from teachers who were on national service. And the
government offices that license or regulate business
may contain workers still doing their national service.
(The hotel waiter who pours the investors morning
coffee, and the customs official who stamps his
passport on arrival, may also be national service
conscripts.) As such, foreign investors face an almost
impossible task if they wish to involve themselves
with Eritrea in a way that completely avoids the
entanglements the program brings from almost every
direction. National service thus creates a litigation and
public relations risk that is not present in any other
developing country. As such, it is a severe drag on
Eritreas economic development.
POOR LIVELIHOODS AND EMIGRATION

Eritrea has suffered from significant emigration in
recent years; tens of thousands have left the country
and sought residence in Europe and elsewhere.
This has devastated the countrys human resources,
weakened the capacity of its institutions (likely
including the military),46 and limited its geostrategic
and economic options. It has also had a debilitating
effect on Eritreas image abroad and the morale of the
people at home.
The rules related to national servicethe very low
salaries and the indefinite length of servicecertainly
play a role here, but they are part of a larger, and
potentially insoluble, dynamic. Eritreas leadership
feels threatened by Ethiopia and knows from
experience that the only way to defend the country
is to ensure that all hands are available at all times.
But while young Eritreans remain as committed to the
country as the generation that won its independence,
they have not had the same experiences or endured
the same hardship. Exposed to a much broader set of
influences, especially from abroad, they are not willing
46 ICG, Eritrea, 10.
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A small store in the old city of Massawa, Eritrea. Photo credit: David Stanley/Flickr.
to demonstrate their commitment in the same way as

their parents. The system of prolonged national service
is therefore unsustainable.
The contradiction between government plans and
the populations expectations is exacerbated by the
countrys financial woes. Salaries for national service
have been so low, in part, because the government
has had little money to pay people (a problem it says
it can now rectifysalaries appear to be steadily
rising to competitive levels).47 Resources have been
significantly constrained, and most available funds
have been directed toward the countrys defense.
The psychological shock of the 19982000 war with
Ethiopia lingers, and though the informal rules related
to national service have become much more relaxed in
recent years (with people finding many more ways to
avoid it),48 the Eritrean leadership is reluctant to bend
the formal rules too far for fear of the consequences.
However, the massive emigration of so many people,
including some of the countrys best educated,49
suggests that some serious adjustment needs to
be considered. Eritrea needs to retain its leaders,
managers, and technicians to build the country, and
47 Interviews with Western diplomatic staff, September 2016.

ATLANTIC COUNCIL
this need will become increasingly urgent in the future

when the current generation of leaders starts to retire.
Box 2: Israels Military Service
There are alternatives that Eritrea could explore
to achieve national security and military readiness
without hemorrhaging large numbers of youth. For
instance, Israel has created a system whereby every
man and woman (with some exemptions) must join the
military for two to three years and then be available
annually for reserve duty until they are forty-five.
Middle-aged men can still be found fighting wars, as
was the case in the last conflict in Gaza. This system
has contributed to Israels economy while engendering
none of the resentment found in Eritrea; to the
contrary, it has boosted morale, social cohesion, and
loyalty to the state.
National service could be an excellent way for Eritrea
to develop were it transformed into a more flexible
institution that builds skills immediately applicable for
earning a living, something the Israeli military service
does, albeit indirectly. Some students gain useful skills
now (such as those working on technical jobs), but
most do not. Turning national service into a useful
work training program would require paying more
competitive rates and ensuring jobs provide practical
skills, such as those typically found in technical and
vocational schools.
11
Eritreas low income level is an important driver of

emigration (as is the ease with which many emigrants
gain legal status).50 In 2015, nominal per capita income
was only $695 ($1,297 at purchasing power parity,
which takes into account how much the money can
buy locally),51 one of lowest figures in the world.52
For those employed in national service, the figures
are much lower, as these jobs pay only a nominal
amount. Inequalities between urban and rural areas
exacerbate these difficulties; as many as four-fifths
of the population depend on agriculture for their
livelihoods,53 and this income is both more erratic and
lower than what an urban worker could earn.
The lack of opportunity is partly
the product of a weak educational
system. Eritrea has one of the
lowest scores on the Human
Development Index, ranking 186 out
of 188 countries worldwide in 2014,
far behind the averages for Africa
as well as the low development
group of countries. Of the countries
assessed, only the Central African
Republic and Niger did worse.54
Over four-fifths of students finish
high school without employable
work skills, and this produces
legions of people unemployable for
any job requiring specialized knowledge.
The government has recognized the scale of the

problem and is trying to improve the sector. It has
reorganized Sawa, the fifteen-month secondary school
and military training camp that all youth attend, to
include more practical training. It has directed a
significant part of its AfDB funding toward higher
education and technical vocational education and
training.57 It has further increased the number of
students in post-secondary studies (about a quarter
go now), and it has sought to upgrade the quality
of teaching in higher education by sending many
instructors overseas for training and importing a
large number (roughly one-third) from places such as
India, which has a large supply of
inexpensive, reasonably qualified
teachers.58 The country, however,
has historically invested relatively
little in the education sector. Its
expenditure on education as a
percentage of GDP was only 2.1
percent in 2012the same as in
2006, the last time statistics were
availableand one of the lowest
figures in the world.59
[Eritreas]
expenditure on
education as a
percentage of GDP
was only 2.1 percent
in 2012 . . . and
one of the lowest
figures in the world.
As such, the greater part of Eritreas public and

private sectors are faced with insufficient human
capital, which is seriously constraining the countrys
economic and social transformation.55 As a partial
result, over half the men, and even more of the youth,
are unemployed or underemployed in seasonal
agricultural work.56 These conditions spur many to
emigrate, as even jobs in food service, janitorial work,
or transportation abroad are more lucrative.
51 Global Finance, Eritrea GDP and Economic Data.
52 The IMF ranked the country 168th out of 186 in 2015 for
nominal GDP and 177th out of 185 for GDP per capita based on
purchasing power parity numbers. See IMF, World Economic
Outlook Database, https://www.imf.org/external/pubs/ft/
weo/2016/01/weodata/index.aspx/.
53 National Statistics Office and Fafo Institute for Applied
International Studies, Eritrea: Population Household Survey
2010, August 2013, 2; AfDB, Eritrea Interim Country
Strategy Paper (I-CSP) 2014-2016, 15.
54 United Nations Development Programme, Human
Development Index, http://hdr.undp.org/en/composite/HDI.
55 AfDB, EritreaInterim Country Strategy Paper (I-CSP) 20142016, 12.
12
POOR BUSINESS
ENVIRONMENT
Eritreas lack of employment

opportunities and weak financial
position are directly related to the poor business
environment. Indeed, like Cuba, Eritrea has managed
its economy with little concern for how incentives
influence behavior. It has adopted policies that
dissuade the population from taking initiatives to
build up their wealth (forcing many to look overseas
for opportunity); discouraged investment and
competition in most sectors of the economy; and
deterred institutions from learning and modernizing
through dynamic interaction with international
markets and organizations.60 Overall, the country ranks
last out of 189 countries on the World Banks Doing
Business indicators, scoring especially low on issues
57 AfDB, EritreaInterim Country Strategy Paper (I-CSP) 20142016, 1 and 13.
58 Author interviews in Asmara, March 2016. The teachers sent
to Western countries did not return, claiming asylum. So the
government now sends them to places like China instead.
59 See United Nations Development Programme, Expenditure
on education, Public (% of GDP) %, http://hdr.undp.org/en/
content/expenditure-education-public-gdp.
60 As the Economist Intelligence Unit concludes, Onerous
regulations, high levels of bureaucracy and woefully inadequate
infrastructure will continue to deter investment and, beyond former
state-owned companies, private-sector activity is expected to
remain limited The absence of a vibrant private sector will, in turn,
prevent the emergence of an organised labour market and local
supply chains. See EIU, Country Report, 2016, 11.
ATLANTIC COUNCIL
related to regulation (e.g., starting a business, dealing

with construction permits, and resolving insolvency),
international trade, and access to credit.61
The anti-business sentiments of many top government
officials do not help matters. These attitudes are
a direct product of the leftist ideology that is still
pervasive among the countrys leadership, which has
abandoned Marxism, but still retains some of its ideas.
As such,
the private sector (outside the agricultural sector)
plays a limited role and is mostly concentrated
in the services and trade sub-sectors. [It] is
small, under-developed, and continues to be
constrained by lack of skilled labour and limited
infrastructure, particularly in energy and roads.
Private sector development has also been
hampered by a weak legal and judicial framework,
especially in terms of law enforcement.62
Eritrea has singularly failed to take advantage of
the countrys unique geostrategic location and
long coastline to advance the economy, allowing
neighboring Djibouti to monopolize all the opportunity
produced by one of the worlds most important
international trade routes (almost one-third of all
shipping in the world passes by the two countries
shores).63 Furthermore, Eritrea has one of lowest
tourist arrival figures of any non-island in the world,
despite its immense tourism potential and location.64
Infrastructure is also a problem. The country
has major deficiencies in energy supply, roads,
telecommunications, and ports.65 Eritrea ranked fortyseven out of fifty-three countries across the continent
in the 2013 Africa Infrastructure Development Index
due to poor road networks, water and sanitation,
energy, and ICT [information and communications
technology] deficiencies.66 It ranked 156 out of 160
61 See World Bank Group, Ease of Doing Business in Eritrea,
http://www.doingbusiness.org/data/exploreeconomies/eritrea/.
62 AfDB, Eritrea Interim Country Strategy Paper (I-CSP) 20142016, 3 and 7.
63 Katrina Manson, Jostling for Djibouti, Financial Times, April 1,
2016, http://www.ft.com/intl/cms/s/2/8c33eefc-f6c1-11e5-803cd27c7117d132.html.
64 In 2011, the latest year for which data are available, 107,000
tourists visited Eritrea. The only non-island countries with
fewer tourists are Moldova, Sierra Leone, Djibouti, the Central
African Republic, Bhutan, Chad, Niger, and the Gambia. About
a dozen countries do not report their numbers. See The World
Bank, International tourism, number of arrivals, http://data.
worldbank.org/indicator/ST.INT.ARVL?order=wbapi_data_
value_2011+wbapi_data_value+wbapi_data_value-first&sort=asc.
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countries in the 2014 Logistics Performance Index,

which measures, among other things, perceptions of
the quality and efficiency of a countrys trade- and
transport-related infrastructure and logistics services.
Only Congo-Brazzaville, Afghanistan, the Democratic
Republic of the Congo, and Somalia fared worse.67 It
had the lowest per capita numbers of mobile phone
subscribers and Internet users in Africa in 2014.68 As
a result, these shortcomings sharply increase the cost
of doing business for companies, which decreases
productivity and incentives for investment.
Weak institutions exacerbate the challenges. Although
top officials sometimes show great vitality and
knowledge, the lack of capable middle managers
(and the risk-adverse atmosphere generated by the
Eritrean political context) enervates most institutions
in the country. This dynamic is exacerbated by the
emigration of many educated young people who
should be filling up middle management positions in
key organizations.
Though international assessments of governance
can be problematic (in theory and method), they do
highlight general trends, especially when they focus
on performance rather than on perceptions or values.
The most well-known assessment, the World Banks
Worldwide Governance Indicators, gives Eritrea
extremely low scores for Government Effectiveness,
Regulatory Quality, and Rule of Law (all rank in
the bottom fifth percentile).69 The country performs
similarly poorly on an African Development Bank index
of Public Sector Management and Institutions, where
it beat out only Somalia.70
Such rankings may, of course, be distorted due to poor
international perceptions of, or a lack of access to, the
country. (For example, although donors and investors
universally acknowledge that Eritrea has very little
corruption, it is nevertheless ranked by Transparency
International as one of the most corrupt in the world).71
They may also reflect more on policy choices or
67 See The World Bank, International LPI Global Ranking, Global
Rankings 2016, http://lpi.worldbank.org/international/global
and The World Bank, International Scorecard, Country Score
Card: Eritrea 2014, http://lpi.worldbank.org/international/
scorecard/radar/254/C/ERI/2014/R/SSA/2014/I/LIC/2014.
68 AfDB, African Statistical Yearbook 2016, 72.
69 The World Bank, Worldwide Governance Indicators, http://
databank.worldbank.org/data/reports.aspx?source=WorldwideGovernance-Indicators.
70 AfDB, 2013-Country Governance Rating (CGR), http://www.
afdb.org/en/documents/document/2013-country-governancerating-cgr-47378/.
71 Eritrea ranked 154 out of 167 countries on the Corruption
Perceptions Index 2015. See Transparency International,
Corruption Perceptions Index 2015, https://www.transparency.
org/cpi2015/#results-table.
13
The railway station in Asmara, Eritrea. Many of the trains still run on steam power. Photo credit: David Stanley/Flickr.
attitudes expressed during implementation than actual

capacity to govern. For example, the mining industry
and donors who have worked with the government
generally have positive stories to tell.72 Despite their
limitations, these indices do show that the country
needs to substantially upgrade its state capacity in
many areas.
While the Bisha mine has achieved its aims in Eritrea
and its managers have few complaints about the
countrys infrastructure, institutions, and logistics,73 the
73 Author interviews in Bisha, March 2016. Bisha managers were
generally complementary about the business conditions,
especially the logistics.
14
mine functions as an island separate from the rest of

the economy. It is more an atypical example of what
may be possible for high priority projects.
Eritrea is promoting its mining sector actively and
with remarkable competence. Mines do not, however,
produce many jobs, and thus can contribute to raising
incomes for only a sliver of the population (unless
the government were to funnel all its increased
revenues into job-creating sectors like agriculture and
infrastructure, rather than defense).74 The creation of
backward linkages to and services for this industry
could also expand the number of jobs (see below),
but it will not be easy.
74 EIU, Country Report, 2013, 13.
ATLANTIC COUNCIL
THE NEED FOR INCREMENTAL

CHANGE
Eritreas challenges seem daunting but are actually
quite comparable to those faced at one time by
Vietnam and China. These countries are good models
for the Eritrean government to examine, because they
are both somewhat similar ideologically to the PFDJ
and came to the conclusion during the 1980s that a
course correction was not only necessary, but could
be conducted without abandoning the core principles
that had underpinned the regimes. Both permitted free
market enterprises to take a larger and more decisive
role in shaping the economy, but retained a pivotal
central role for the state. As a result, both states were
able to create models better suited to local conditions
than those promoted by Western institutions, yielding
what Vietnam calls the socialist-oriented market
economy and what China calls the socialist market
economy or socialism with Chinese characteristics.
Importantly, both countries also sought incremental
rather than wholesale reforms. This permitted learning
by trial and error and enabled the government to focus
on increasing the efficiency of existing institutions
rather than the construction of new ones.
China, for instance, eschewed the big bang approach
to reform that is typically advocated by Western
development actors, under which all prices and
markets are freed simultaneously. Instead, it focused
on dealing with the big issues, such as incentives,
worker mobility, price flexibility, competition, and
openness.75 This unleashed the potential of Chinese
workers in ways that the Communist Party considered
politically feasible. Enormous economic advances
were made despite, and perhaps because, institutional
reforms were put off. This directly contradicts the
normative Western development perspective, but in
the Chinese case, it worked. Institutional weaknesses,
government malfeasance, a lack of democracy, and
even gross distortions to some markets mattered
much less than Western models predicted because
initiative was rewarded at every level. Fundamentally,
this is what the PFDJ needs to accomplish: it needs
to better leverage incentives to produce investment
75 Loren Brandt and Thomas Rawski, Chinas Great Economic

Transformation, in Chinas Great Economic Transformation,
eds. Brandt and Rawski (Cambridge: Cambridge University
Press, 2008), 20.
ATLANTIC COUNCIL
and competition in order to expand the economy and

increase employment.
Eritrea is already moving slowly away from what has
been, in effect, a command economy.76 The trajectory
of this change is likely to look a lot more like the
process underway in Cuba, which is going through its
own period of piecemeal reform from a command to
fully market-based economy, than that of countries
operating under the auspices of the International
Monetary Fund. And the end result is likely to be closer
to what currently exists in Vietnam than in Western
capitalist countries.
Eritreas economic changes have paralleled its political
reengagement with the international community after
many years of separation. On the political front, the
country has reactivated its membership in a number of
international organizations, such as the AfDB and the
African Union. It has opened its doors to more visitors
than in previous years, including many from the
media. It has made tentative steps to address some
of the complaints of Western human rights actors in
order to create better relations with Europe and the
United States. And it has concluded an important
development agreement with the European Union.
On the economic front, the government has privatized
a number of state-owned enterprises,77 held several
investment conferences, and discussed improving
the business climate (though change here is hard to
discern). However, government authorities still seem
averse to private business and foreign investment
outside of the mining sector.
Given the PFDJs strong policy preferences, only ideas
that creatively fit within the current socioeconomic
model have a chance of improving the countrys
economy and employment situation. Arguing that
the PFDJ should completely abandon its approach
and adopt a Western model wholesale therefore does
not make sense and may even be counterproductive.
Instead, pragmatic policies that leverage the countrys
strengths and fit comfortably within the leaderships
ideological framework ought to be pursued.
76 EIU, Country Report, 2016, 11.
77 Ibid.
15
ONE WAY FORWARD

As the mining sector and key international partnerships
(with the EU, United Nations Development Programme,
and AfDB, for instance) show, Eritrea has the capacity
to manage a small number of high profile initiatives well
when it so desires. The cohesiveness and competence
of its top leaders surpass those of many countries in
Africa. If this senior-level competence could be applied
more pragmatically to developing the economy, Eritrea
could certainly grow its economy much faster.
It could, for instance, develop a number of state- or
ruling partyowned investment companies that would
play a prominent role in developing the economy,
as is the case in Rwanda, China, and Vietnam. These
companies would aim to both maximize profit and
achieve certain strategic social or economic goals
for the country (e.g., develop certain industries), and
be completely managed by the private sector (for
all hiring, promotions, technology imports, and so
on).78 Such an approach would necessitate giving
competitive markets a key and improved role in the
economy, on the understanding that markets drive
progress, but leave control over the commanding
heights of the economy in the hands of the state.
(Rwanda offers an interesting model along these lines
from which Eritrea could learn. See box 3).
The country does some of this today with its myriad

party- and government-owned businesses (such as
the Red Sea Trading Corporation), but these operate
less on private sector lines than they should; are faced
with less competition; target a much smaller market;
receive more favorable treatment from government
regulators; and seem to be organized in a less strategic
fashion than comparable entities in other countries. As
such, they have not been nearly as effective in helping
the country develop.
Eritreas private sector, which today is limited to
mostly small-scale businesses (in areas such as
retail, agriculture, restaurants, and hotels), should be
given more room to grow. This will require greater
transparency, consistency, and efficiency in the
application of rules and laws. The state should see
a flourishing private sector as a crucial ally in the
countrys development, and should take steps to
encourage its growth with less ambivalence and
inconsistency. The more Eritreans can be incentivized
(rather than ordered) to develop their country, the
more likely progress will become a population-wide
endeavor that can catalyze people inside and outside
the country to work together to build it up. This type
of formula worked very well during the war years but
has not been repeated since.
78 David Booth and Frederick Golooba-Mutebi, Developmental

Patrimonialism? The Case of Rwanda, African Affairs 111 (July
2012): 379403.
Box 3: Learning from Rwanda79

Rwanda and Eritrea have much in common: both are
led by a cohesive rebel organization that won control
through war and then converted itself into a political
party to run the country. Both have charismatic
leaders. Moreover, both President Isaias Afwerki and
President Paul Kagame are ambivalent about foreign
aid and question the utility of Western development
paradigms, while being highly committed to nationbuilding, national development, and self-reliance. Both
leaders are rather austere, have a strong sense of
public duty, and fervently stamp out corruption. Both
have fallen out with former close political allies, who
now have either disappeared or been forced into
exile. Both countries are intolerant of any opposition to
the government and have stirred controversy abroad
with some of their actions abroad.
79 This case study is based on Booth and Golooba-Mutebi,

Developmental Patrimonialism? The Case of Rwanda.
16
The similarities also extend to the economic sphere.

Both countries use highly centralized decision-making
models; give state- or party-led companies leading
roles; and aim to use the rents these generate for
long-term national development rather than shortterm (corrupt) personal gain. As such, they differ
substantially from the typical African and Middle
Eastern modal pattern, under which rent seeking is
widespread and uncontrolled.80
Perhaps because it is unimpeded by border conflicts
and the threat of war, Rwanda has performed much
better in a wide range of development areas. As such,
it can offer a few important lessons for Eritrea.
Rwandas government has not hesitated to
opportunistically take advantage of foreign aid. This
foreign funding has helped the Rwandan government
focus even more than the Eritrean regime has on
building up its legitimacy through economic and
80 Booth and Golooba-Mutebi, Developmental Patrimonialism?,
38487.
ATLANTIC COUNCIL
social development and the delivery of public

services. In particular, while Eritrea has compelled
its citizens into national service for nominal pay,
Rwanda has placed a very strong emphasis on
building a competitive civil service and has sought
creative ways to achieve this goal (such as recruiting
from overseas). Eritreas national service has actively
hamstrung the governments efforts to administer
the country by forcing many capable people to leave
and discouraging the diaspora from returning, either
to work for the government or to open businesses of
their own.81
Rwanda has used a series of investment or holding
companies to lead its development efforts.
Crystal Ventures Ltd (formerly known as Tri-Star
Investments),82 which is fully owned by the ruling party
(the Rwandan Patriotic Front), has played a key role.
It wholly or mainly owns eleven businesses, including
entities in metals trading, road construction, housing
estates, building materials, fruit processing, mobile
telephony, and printing, as well as furniture imports
and security services; most are the largest in their
sector in the country. It also has a minority stake in a
392.
82 See Crystal Ventures, About Us, http://www.
crystalventuresltd.com/.
ATLANTIC COUNCIL
number of joint ventures. Its taxes amounted to about

9 percent of all direct taxes paid in fiscal year 2009
2010. The army also created an investment company,
Horizon Group. Lastly, the government worked with
a group of thirty-one wealthy domestic and diaspora
entrepreneurs, four medium-sized companies, and
six institutional investors to form an investment
consortium, the Rwanda Investment Group, to invest
in large projects that could not be funded otherwise
given the countrys weak capital markets.
In all these cases, the companies use their financial
clout to fund investments with high expected social
benefits and/or positive economic externalities,
including those associated with venture capitalism.83
They are all run on private sector lines and aim to
build productive enterprises that can be profitable.
They thus have dual goals, one purely financial and
one socioeconomic. Rwanda also takes a robustly
internationalist approach to filling skills gapswith
business efficiency and the meeting of strategic social
objectives taking precedence over commitments to
local hiring and capacity development.84
83 Booth and Golooba-Mutebi, Developmental Patrimonialism?

The Case of Rwanda, 398402.
398402.
17
STRATEGIC OPPORTUNITIES
Eritrea has a number of sectors that are ripe
for development. Some, such as the mining and
agricultural sectors, have received ample attention
from the government. Others, such as tourism,
transshipping, and manufacturing, seem neglected
despite rhetoric to the contrary.

Agriculture: The government has long prioritized

farming, seeing it as crucial to food security,
poverty reduction, and national self-reliance.
Yet yields are quite low, forcing the country
to depend on imports to fill gaps despite the
relatively small population. Unpredictable water
supplies (including frequent droughts) and energy
supplies are persistent problems. Although there
are ongoing attempts to improve soil and water
conservation, technological inputs, and the
availability of solar, wind, and thermal energy,85
perhaps more must be done to link effort to
reward (which would boost productivity and
output) or to ensure that peasant farmers have the
resources, knowledge, and incentives to maximize
output. Improvements to extension services, better
infrastructure, investments in agricultural research,
and large-scale education and training programs
could all pay dividends. International partnerships,
especially with countries in Africa or the Middle
East that face similar challenges (e.g., Israel), could
help here. The country has the potential to be a
base for cash crops dedicated to export markets
(such as cotton, which it once exported), especially
given its close proximity to Europe.
Mining: This sector has become far and away the
most important to the country. The state has set
attractive terms and established a sophisticated
regulatory framework (in areas such as labor and
the environment) copied from best practices
abroad, and mulitnationals are investing.86 There
are strong strategies in place to develop human
resources for the sector. The governments work
on logistics has been praised. Investors appear
to have few if any complaints about the Eritrea
National Mining Corporation, the local joint venture
partner.87 The main limitations of the sector are the
lack of jobs it creates; the difficulties in developing
backward linkages or peripheral businesses (in
sharp contrast to manufacturing); and the sectors

86 Author interviews in Washington with Nevsun, October 2015.
87 Author interviews in Bisha, March 2016.
18
isolation from the rest of the economy, limiting

its ability to impact the countrys overall business
climate and international competitiveness. Given
the countrys ample natural resourcesincluding
copper, tin, gold, potash, and rock saltthere is
strong potential for expansion. There is also the
possibility of oil offshore.88 The value of these
natural resources must, of course, be weighed
against the risk that the Eritrean government will
force the investor to subcontract with a stateowned enterprise that employs national service
workers, thus exposing the mine to the threat of
lawsuits overseas (see box 4).
Box 4: The Bisha Mine
The Bisha mine showcases the countrys significant
mineral deposits and the governments ability to plan
and implement key projects when prioritized.
The Bisha Mining Share Company (BMSC), a joint
venture between Eritreas National Mining Corporation
and Canadas Nevsun Resources Ltd., manages the
mine, which is about 150 kilometers west of Asmara.
Commercial production started in February 2011.
The mine was originally a low-cost, high-grade gold
producer (20112012), before transitioning into
mainly a high-grade copper concentrate producer
(20132016), and subsequently a high-grade zinc
producer (2016 onwards). The state of Eritrea owns 40
percent of the mine. The exploration license includes a
satellite deposit and several other areas that have yet
to be explored.89 Its area was significantly expanded
in mid-2016 to include two highly prospective land
packages.90
The mine achieves world-class performance, partly
due to transparent and consistent government support
and fulfilled commitments. The countrys mining
regulations are highly sophisticated and the terms
offered highly attractive. Its social, environmental,
labor, and cultural protection regulatory regimes
reflect best practices. Logistics have been handled
efficiently, and there are no difficulties getting output
to export markets. According to executives at the
88 Oil and Gas Exploration in the Red Sea Still Goes Ahead
Red Sea Oil & Gas 2015 Summit, 23rd-24th February,
Dubai, PRWeb, March 14, 2015, http://www.prweb.com/
releases/2015/03/prweb12583439.htm.
89 Public records; AfDB, Eritrea Interim Country Strategy Paper
(I-CSP) 2014-2016, Annex VIII.
90 Nevsun Increases Bishas Exploration License Area Nearly
Twenty-Fold, Nevsun Press Release, July 26, 2016, http://www.
nevsun.com/news/2016/july26/.
ATLANTIC COUNCIL
company, the governments performance has easily

surpassed that of more developed countries, such as
Brazil. There is no apparent corruption at any level.
The turnaround time at the port is only twenty-four
hours. Customs can be handled right outside the mine
in Bisha.
Nevsuns main complaints concern how long it takes
to transport supplies to the mine (due to its relative
isolation) and the challenge of hiring well-trained
employees.91 It must also be unhappy with the risk
it faces from working in the country: the company,
which denies any wrong-doing, is being sued over its
alleged use of forced labor due to the fact that it had
to use a state-owned contractor to do some of the
construction work when building the mine.92
to become a transit hub while its border with

Ethiopia remains closed, and though Djiboutis
ascendency can hardly be challenged at this
point, Eritrea could still profit by investing more
in the development of the Assab and Massawa
ports. These could serve as hubs for transit trade
to Sudan and South Sudan, and possibly Yemen.
Partnering with a major international ports
operatorsuch as Hutchison Port Holdings, PSA
International, DP World, or COSCOin the way it
currently partners with mining companies would
be a logical way forward.

Manufacturing: Eritrea has a prime location to

develop a special economic zone geared for
exports to the Middle East and Europe. Given
the cost of labor and ports, the country could
potentially be a dynamic hub that creates tens of
thousands, if not more, jobs, soaking up surplus
labor and providing an attractive alternative to
migration. The government has long talked about
the Massawa Free Trade Zone (FTZ) fulfilling this
vision, but implementation has been slow. Some
sort of public-private joint venture or the hiring of
an overseas private company could significantly
accelerate this effort.
Tourism: Eritreas beautiful coastline and historical

sites hold enormous potential for promoting niche
tourism (e.g., serving up to five hundred people
at a time), especially given the countrys stability
and proximity to Europe and the Middle East. The
government, however, has never seemed excited
about the sector, possibly because it sees the
arrival of large numbers of foreigners as somehow
threatening its self-reliance. Although there is
a certain logic to this, such an approach stands
in sharp contrast to what similar countries have
done in recent years: China, Vietnam, and Rwanda
actively seek out tourists because of the money
they bring and jobs they create. Eritreas approach
is more akin to that of communist countries of
an earlier era. If the country focused solely on
high-end customers to combine short tours of
Asmara with longer stays at coastal resorts, it
could take better advantage of its natural assets
without significantly disrupting the status quo.
As in the other sectors above, a partnership with
an international hospitality companypossibly
a regional one sensitive to the governments
concernsmight offer a way forward.
Eritrea is now using the mine to develop its broader

capacities in the sector. Schools are offering
specialized degrees. Trainees are staying on site.
Positions at the mine are being localized. Backward
linkages that would jumpstart related businesses
are being explored. And as other mines open, some
employees can expect to be transferred to take up
more responsible jobs.93
All of this shows a high degree of sophistication
and capacity not typically associated with Eritrea.
It demonstrates what would be possible if such
partnerships were applied to the economy more
broadly.
Transshipment and logistics: Eritrea sits astride

one of the worlds most important international
shipping routes, and yet it has allowed neighboring
Djibouti to monopolize all the gains of this industry.
Whereas the latter has attracted hundreds of
millions in investmentand built eight ports to
handle containers, livestock, oil, phosphates, and
moreEritreas coastal cities remain astonishingly
quiet, a pale reflection of how they were a few
generations ago. In addition, Djibouti has exploited
its location to attract the militaries of the United
States, China, Japan, and several European
countries, creating a steady source of income as
well as a robust security blanket, which keeps the
ruling party in power.94 Though Eritrea is unlikely
91 Author interviews at Bisha, March 2016.

92 Peter Koven, There are Many Good Reasons for Takeover
Interest in Nevsun and One Really Big Downside, Financial
Post, November 20, 2014, http://business.financialpost.com/
news/mining/nevsun-takeover-talk.
93 Author interviews in Asmara and Bisha, March 2016.
94 Manson, Jostling for Djibouti,; Robert Wright, Djibouti Shows
Depth of Port Ambitions, Financial Times, February 22, 2009,
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http://www.ft.com/intl/cms/s/0/4c296e0a-00fa-11de-8f6e000077b07658.html#axzz49Ou3sPcD.
19
20
Infrastructure: Certain infrastructure projects

could be significantly advanced via a joint venture.
The most obvious target is the cellular phone
network (currently run by EriTel, the Eritrean
Telecommunication Services Corporation), which
remains by far the worst in Africa, despite the large
number of international actors that might welcome
a chance to enter the market. A joint venture
offering attractive terms to a foreign partner could
draw such international actors in, and a competitive
bidding process would maximize returns to the
state. Energy and the ports (as mentioned above)
could be similarly developed through a publicprivate partnership of this kind.
Seafood: The countrys location and shoreline
hold potential for the development of a seafood
industry fueling exports to Europe, the Middle
East, or beyond. In addition, higher valueadded products (e.g., canned goods) could
eventually be developed in the FTZ. By utilizing
the Massawa international airport and new cold
storage equipment from China, opportunities for
developing this industry abound.
Trade with Ethiopia: Reestablishing trade
relations with Ethiopia would be a great boon
for the country. Inarguably, there is nothing that
would benefit the Eritrean people more than the
resumption of the thriving cross-border trade
with Ethiopia; two-thirds of Eritreas exports

went to Ethiopia before ties were cut in 1998.95
The common culture and language shared by the
elites of both countries would give Eritrea some
advantage in competing with alternative routes.
However, reopening the border would require the
United States and Britain, among other countries,
to honor their commitments to enforce the ruling
of the border commissiona matter that is beyond
Eritreas control.
While the economic policies that might advance these
sectors are relatively straightforward, the political
and institutional prerequisites are complex. Creative
ownership structuresgiving the leadership more
control over outcomes and returnscould increase
incentives for the government to prioritize new areas.96
The greater openness demonstrated in recent years
augurs well for some change, but it will come slowly.
In whatever way Eritreas government proceeds,
experimentation and incrementalism seem to be its
preference. This approach fits well with the strategies
adopted by other successful economies, particularly
China.
96 Governments tend to support only the sectors in which they
have a stake. See Ministry of Foreign Affairs of Denmark,
Elites, Production and Poverty. A comparative study, http://
drp.dfcentre.com/project/elites-production-and-povertycomparative-study.
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PRACTICAL ADVICE FOR

INTERNATIONAL ACTORS
The international community has strong opinions
about the direction Eritrea should take on a variety
of issues, from human rights to governance to
international affairs to economic policy. While some
of this is well-intentioned, much of it is based on a very
limited understanding ofand empathy forEritreas
historical experience. Although some of the Eritrean
governments choices deserve criticism, any attempt
to assist the country needs to start with where it is
now, not where foreigners think it ought to be.
Eritrea has shown, especially in
recent years, a willingness to work
with countries and organizations
that treat it with respect and not as
a target of help. It has, however,
consistently refused to develop
a dependency on foreign aid or
assistance that made it the junior
partner.97 In 2011, for example,
Eritrea pulled out of a long-term
development agreement with the
UN on the grounds that aid only
postpones the basic solutions to
crucial development problems
by tentatively ameliorating their
manifestations without tackling
their root causes. The structural,
political, economic, etc. damage that it inflicts upon
recipient countries is also enormous.98 Eritrea refused
to work with the AfDB until it changed the countrys
designation from a fragile state to a transition state.99
On the other hand, the government seems to find
it easy to work with China, with which it shares
some characteristics and values, and whose officials
understandfrom their own experiences with the
Westthe intensity of Eritreas desire to be treated as

an equal partner despite great differences in economic
conditions and political ideology. Finding a method of
cooperation that reflects Eritreas values is not only
possible, but is also more likely to succeed, given the
starting conditions, than an approach seeking to make
it something it is not.
Despite international human rights and media
rhetoric to the contrary, Eritrea is neither uniformly
evil100 nor incompetent. In fact, Eritrea is far more
like its neighbors than either
the international community or
government cares to recognize.
The governments concept of the
states role does not seem all that
different from that of Ethiopia,
Saudi Arabia, Sudan, and Egypt.
And Eritreas record on human
rights is certainly not substantially
worse than that of Ethiopia, Sudan,
Egypt, Saudi Arabia, Djibouti,
Yemen, or Somaliathe other
countries on the Horn of Africa
and Red Seaeven though it has
been singled out as the bad actor
far more than any other country
in this region. International actors
must first and foremost rebalance their rhetoric on
Eritrea, if they hope to project any influence on the
country.
Eritrea has shown,

especially in
recent years, a
willingness to work
with countries and
organizations that
treat it with respect
and not as a target
of help.
97 See, for instance, Edmund Sanders, Eritrea aspires to be selfreliant, rejecting foreign aid, Los Angeles Times, October 2,
2007, http://www.latimes.com/world/la-fg-eritrea2oct02-story.
html.
98 George Russell, Eritrea to U.N.: Take This Aid and Shove
It, Fox News, March 30, 2011, http://www.foxnews.com/
world/2011/03/30/eritrea-aid-shove.html.
99 Author interviews in Abidjan at the AfDB, November 2015.
ATLANTIC COUNCIL
As discussed above, the government has capably

managed a number of large, joint projects with
organizations such as Nevsun, the UN, the AfDB,
and the EU. Practical assistance to strengthen
Eritreas policy-making capacity, legal frameworks,
education, vocational training, the energy sector, and
infrastructure should all be welcome.
100 See, for instance, Adam Taylor, The Brutal Dictatorship the
World Keeps Ignoring, Washington Post, June 12, 2015, https://
www.washingtonpost.com/news/worldviews/wp/2015/06/12/
the-brutal-dictatorship-the-world-keeps-ignoring/.
21
PRAGMATISM AND SELF-RELIANCE

Eritreas complex situation calls for, above all else,
pragmatism. The international community needs
to be more realisticindeed, more agnosticwhen
engaging Eritrea. Their policies toward the country
should resemble those applied to Cuba, not to North
Korea. The success of countries such as those in East
Asia and Rwanda show that every country has unique
assets and challenges, and building incrementally on
what already works is far more likely to succeed than
trying to import a particular model from overseas.
needs to more flexibly interpret its ideological

emphasis on self-reliance. Specifically, the party
needs to find a way to exploit foreign partnerships as
a vehicle for empowerment, rather than as a threat to
self-sufficiency. If Eritrea can find a way to embrace
international investors and foreign assistance while
maintaining its commitment to self-reliance and to its
core, egalitarian values, it could become a symbol of
African renaissance, as some hoped would be the case
in the 1990s.
As Justin Yifu Lin, the first person from a developing

country to serve as the World Banks chief economist,
writes:
International actors should support this vision. After

all, Create self-reliance! should be the rallying cry for
aid agencies everywhere. The best way to achieve this
goal is to recognize that domestic actors must play
the leading role, and that the primary role of outside
actors should be to build on what capacity already
works and facilitate an organic, domestically driven
process of state building and policy making.102 Local
communities are bound to make mistakes, but the
job of outside actors should be to help local people
learn from those mistakes.103 In this way, refocusing
the involvement of foreign actors would allow for a
more collaborative aid system to replace the current
externally driven process (see table 1) in Eritrea and
elsewhere.
Theories and models taught in universities

generally assume a first-best world, but in the
real worldespecially in developing countries
there are distortions, bumps, and barriers that
leave many countries far removed from the firstbest situation.
So it is important for us to be pragmatic, to
understand the opportunities at hand, and make
small, but welfare-improving, changes. Small
changes can lead to large changes in the future.101
But this will also require more flexible thinking from
Eritreas leaders. Eritrea can and should pursue
economic growth on its own terms, but it should
be more like China and Rwanda, and less like Cuba.
Eritrea has great economic potential. But the PFDJ
101 Justin Yifu Lin, Lets Be Pragmatic: My Final Post as
World Bank Chief Economist, World Bank Lets Talk
Development Blog, May 31, 2012, http://blogs.worldbank.org/
developmenttalk/let-s-be-pragmatic-my-final-post-as-worldbank-chief-economist.
22
102 Seth D. Kaplan, Betrayed: Promoting Inclusive Development in

Fragile States (New York: Palgrave MacMillan, 2013), 21920.
103 As a report published in 2011 by three distinguished
development academics concluded, In general, aid is most
likely to be effective if its essentially organic, in the sense of
(a) supporting existing domestic initiatives and pressures for
change, and (b) in ways that are consistent with the initial
state of the polity. Shantayanan Devarajan, Stuti Khemani,
and Michael Walton, Civil Society, Public Action, and
Accountability in Africa, HKS Faculty Research Working Paper
Series RWP11-036, John F. Kennedy School of Government,
Harvard University, 2011, 32.
ATLANTIC COUNCIL
Table 1. Comparison of Two Aid Paradigms
Externally Driven Aid Delivery System
Collaborative Aid System
Local people seen as beneficiaries

and aid recipients
Local people seen as colleagues

and drivers of their own development
Focus on identifying needs
Focus on supporting/reinforcing capacities

and identifying local priorities
Pre-planned/pre-determined programs
Context-relevant programs developed jointly by

recipient communities and aid providers
Provider-driven decision-making
Collaborative decision-making
Focus on spending
on a pre-determined schedule
Fit money and timing to strategy

and realities on the ground
Staff evaluated and rewarded for managing

projects on time and on budget
Staff evaluated and rewarded for quality of

relationships and results that recipients say
make lasting positive changes in their lives
Monitoring and evaluation by providers on

project spending and delivery of planned
assistance
Monitoring, evaluation, and follow-up by

providers and recipients on the results and
long-term effects of assistance
Focus on growth
Planned draw down and mutually agreed exit/

end of assistance strategy
Source: This is a modestly revised version of a table in Mary Anderson, Dayna Brown, and Isabella Jean, Time to Listen: Hearing People on
the Receiving End of International Aid (Cambridge, MA: CDA Collaborative Learning Projects, 2012), 138.
ATLANTIC COUNCIL
23
ABOUT THE AUTHOR

DR. SETH KAPLAN
Seth Kaplan is a professorial lecturer in the Paul H. Nitze School of Advanced
International Studies (SAIS) at Johns Hopkins University, senior adviser for the Institute
for Integrated Transitions (IFIT), and consultant to multilateral organizations such as the
World Bank, African Development Bank, United Nations, and OECD as well as bilateral
donors, developing country governments, think tanks, and NGOs.
He is currently working on the first United Nations World Bank Joint Flagship Study
(on conflict prevention) and leading efforts to update USAIDs Fragility Assessment
Prototype and Application Guidance. He is also managing an eight country comparative
study for the United States Institute of Peace on transitions in fragile states. Mr. Kaplan
is the author of two books on fragile states: Fixing Fragile States: A New Paradigm for
Development (Praeger Security International, 2008); and Betrayed: Promoting Inclusive
Development in Fragile States (Palgrave Macmillan, 2013). He writes regularly for and
manages the influential blog Fragile States Forum.
24
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Eritreas Economy: Ideology and Opportunity

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ERITREAS ECONOMY

Ideology and Opportunity

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

At present, Eritreas most urgent economic priorities

Like Cuba, Eritrea is not, and

they are in Cuba: through engagement that starts

This report is based on a combination of desk research and a

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

Eritrea can learn much from the successful reform

and all sought local solutions and models to guide

John McKay, The Asian Miracle after the Global Financial

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

Eritrean people, without which it could not have won

The birth of the

Although officially dropped in

Each of the countrys seventeen ministries has a minister and

David OKane and Tricia Hepner, Biopolitics, Militarism, and

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

governments. Washingtons strong tilt toward Ethiopia

In the years following independence, Eritrea has

12 International Crisis Group (ICG), Eritrea: The Siege State,

14 Estimates of Eritreas population vary widely. The Eritrean

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

Strengthening self-reliance. No outside actor has

Maintaining strong leadership. Unity is essential

Encouraging resilience. Backing down from

Seeking local solutions. Eritreas problems are

The PFDJ is similar to other leftist revolutionary

path promoted by Western development agencies

17 The Heritage Foundation, Index of Economic Freedom,

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

THE LIMITS OF IDEOLOGY

Though many of the PFDJs economic policies have

Eritrea has long ignored (or

also help retain more of the countrys best human

21 AfDB, Africas Recent MDG Performance, http://www.afdb.

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

Figure 1. Eritreas Exports, Imports, and Trade

Source: Economist Intelligence Unit (EIU), Country Report,

Figure 2. Eritreas 2014 Imports (Excluding OIl)

Animal and Vegetable

Plastics and Rubbers 7.3%

20092011 before dropping as revenue from the Bisha

Vegetable Products 8.7%

in mineral prices after 2013, export earnings are now

Consistent deficits have produced consistently high

33 AfDB, Eritrea Interim Country Strategy Paper (I-CSP) 20142016, 4, footnote 6.

ERITREAS ECONOMY: IDEOLOGY AND OPPORTUNITY

Figure 3. International Financial Position

in 20082011 before dropping to around 12 percent in

External debt (% of GDP)

Current account balance (% of GDP)

Source: World Economic Outlook Database, http://www.imf.org/

Figure 4. Eritreas Gross Debt

Such reform is not only painful to the public, but

ISOLATION AND THE SANCTIONS

Source: World Economic Outlook Database, http://www.imf.org/

Figure 5. Eritreas Public Finance

Fiscal balance (% of GDP)