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The economy of Eritrea has experienced considerable growth in recent years, indicated by an improvement in
gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation ...
(GDP) in October 2012 of 7.5 percent over 2011. However, worker
remittance A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland. Money sent home by migrants competes with i ...
s from abroad are estimated to account for 32 percent of gross domestic product.Eritrea country profile
Library of Congress The Library of Congress (LC) is the research library that officially serves the United States Congress and is the ''de facto'' national library of the United States. It is the oldest federal cultural institution in the United States. The libra ...
Federal Research Division The Federal Research Division (FRD) is the research and analysis unit of the United States Library of Congress. The Federal Research Division provides directed research and analysis on domestic and international subjects to agencies of the United ...
(September 2005). ''This article incorporates text from this source, which is in the public domain.''
Eritrea Eritrea ( ), officially the State of Eritrea, is a country in Eastern Africa, with its capital at Asmara. It is bordered by Ethiopia in the south, Sudan in the west, and Djibouti in the southeast. The northeastern and eastern parts of Eritrea ...
has an extensive amount of resources such as copper, gold, granite, marble, and potash. The Eritrean economy has undergone extreme changes due to the
War of Independence A war of independence or independence war is a conflict occurring over a territory that has declared independence from some nation-state or ruling colonial power. Once the state that previously held the territory sends in military forces to asser ...
. In 2011, Eritrea's GDP grew by 8.7 percent making it one of the fastest growing economies in the world.


Economic history

Eritrea’s recent growth performance has been marked by significant volatility in part due to its dependence on a predominantly rain-fed agriculture sector, accounting for about one-third of the economy (and which has a significant impact on distribution services which account for around 20% of gross domestic product (GDP), and on a narrow mining sector which also accounts for 20% of the economy. Real GDP growth is estimated to have recovered to around 12% in 2018, while averaging -2.7% during 2015-18 on account of frequent droughts and a decline in mining production. Reported inflation has been negative during 2016-18, following the exchange of currency in circulation in November 2015 that resulted in a monetary contraction. Deflation continued in 2018 as increased trade with Ethiopia resulted in further put downward pressure on prices. In recent years, Eritrea has significantly tightened fiscal policy to reverse the chronic deficits it suffered after the increase in regional insecurity in 1998. In 2018, the fiscal surplus widened to around 11% of GDP in 2018. This was largely achieved by a sharp drop in capital spending as well as some revenue measures. However, fiscal pressures, both recurrent and wage-related are likely to mount. Short-term growth prospects remain challenging given fiscal constraints and limited opportunities under existing restrictions. The recovery in agriculture is expected to slow. The country remains in a difficult macroeconomic situation with an unsustainable debt burden (including arrears to the World Bank) and vulnerable financial and external sectors.


Gross domestic product (GDP)

Eritrea's GDP, estimated at $4.037 billion in 2011, is 8.7 percent above the GDP in 2010. The growth was due to increased agricultural output and the expansion of the mining industry along with increasing gold prices. Breakdowns of the Eritrean economy by sector are not readily available; however, according to some estimates, in 2011 services accounted for 55 percent of the GDP, industry for 34 percent, and agriculture for the remaining 11 percent. The growth of the GDP, however, is compromised by the ongoing and tensions with the country's borders.


Industries


Agriculture, Forestry, and Fishing

In 2004,
agriculture Agriculture is the science, art and practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled peo ...
employed nearly 80 percent of the population but accounted for only 12.4 percent of gross domestic product (GDP) in Eritrea. The agricultural sector has improved with the use of modern farming equipment and techniques, and dams. Nevertheless, it is compromised by a lack of financial services and investment. Major agricultural products are
sorghum ''Sorghum'' is a genus of about 25 species of flowering plants in the grass family Poaceae. Some of these species have grown as cereals for human consumption and some in pastures for animals. One species, ''Sorghum bicolor'', was originally dome ...

sorghum
,
barley Barley (''Hordeum vulgare''), a member of the grass family, is a major cereal grain grown in temperate climates globally. It was one of the first cultivated grains, particularly in Eurasia as early as 10,000 years ago. Barley has been used as ani ...

barley
,
beans A bean is the seed of one of several genera of the flowering plant family Fabaceae, which are used as vegetables for human or animal food. They can be cooked in many different ways, including boiling, frying, and baking, and are used in man ...
,
dairy products Dairy products or milk products are a type of food produced from or containing the milk of mammals, most commonly cattle, water buffaloes, goats, sheep, and camels. Dairy products include food items such as yogurt, cheese and butter. A facility t ...
,
lentil The lentil (''Lens culinaris'' or ''Lens esculenta'') is an edible legume. It is an annual plant known for its lens-shaped seeds. It is about tall, and the seeds grow in pods, usually with two seeds in each. As a food crop, the majority of wor ...
s,
meat Meat is animal flesh that is eaten as food. Humans have hunted and killed animals for meat since prehistoric times. The advent of civilization allowed the domestication of animals such as chickens, sheep, rabbits, pigs and cattle. This eventu ...
,
millet Millets () are a group of highly variable small-seeded grasses, widely grown around the world as cereal crops or grains for fodder and human food. Millets are important crops in the semiarid tropics of Asia and Africa (especially in India, Ma ...

millet
,
leather Leather is a durable and flexible material created by tanning animal rawhide and skins. The most common raw material is cattle hide. It can be produced at manufacturing scales ranging from artisan to modern industrial scale. Leather making has ...
,
teff ''Eragrostis tef'', also known as teff, Williams lovegrass or annual bunch grass, is an annual grass, a species of lovegrass native to the Horn of Africa, notably to modern-day Ethiopia. It is cultivated for its edible seeds, also known as teff. ...
, and
wheat Wheat is a grass widely cultivated for its seed, a cereal grain which is a worldwide staple food. The many species of wheat together make up the genus ''Triticum''; the most widely grown is common wheat (''T. aestivum''). The archaeological rec ...

wheat
. The displacement of 1 million Eritreans as a result of the war with Ethiopia, and the widespread presence of
land mines A land mine is an explosive device concealed under or on the ground and designed to destroy or disable enemy targets, ranging from combatants to vehicles and tanks, as they pass over or near it. Such a device is typically detonated automaticall ...
all have played a role in the declining productivity of the agricultural sector. Currently, almost a quarter of the country's most productive land remains unoccupied because of the lingering effects of the 1998–2000 war with Ethiopia. Although
forestry Forestry is the science and craft of creating, managing, playing, using, conserving and repairing forests, woodlands, and associated resources for human and environmental benefits. Forestry is practiced in plantations and natural stands. The s ...
is not a significant economic activity in Eritrea, its forested area covers , or 13.5 percent of the total land area. Total roundwood production in 2004 was 1,266,000 cubic meters, nearly all of it used for
fuel A fuel is any material that can be made to react with other substances so that it releases energy as heat energy or to be used for work. The concept was originally applied solely to those materials capable of releasing chemical energy but has ...
. Since 1993, the Eritrean People's Liberation Front army has been involved in tree planting and other
afforestation Afforestation is the establishment of a forest or stand of trees (forestation) in an area where there was no previous tree cover. Many government and non-governmental organizations directly engage in afforestation programs to create forests a ...
activities; the annual average rate of
deforestation deforestation in 1750-2004 (net loss) showing anthropogenic modification of remaining forest. File:MODIS (2020-08-01).jpg, 300px, Dry seasons, exacerbated by climate change, and the use of slash-and-burn methods for clearing tropical fores ...
during 1990–2000 was 0.3 percent. Reliable figures on the extent and value of the
fishing industry The fishing industry includes any industry or activity concerned with taking, culturing, processing, preserving, storing, transporting, marketing or selling fish or fish products. It is defined by the Food and Agriculture Organization as including ...
in Eritrea are difficult to obtain. However, Eritrea's long coastline offers the opportunity for significant expansion of the fishing industry from its current, largely artisanal, stage. Eritrea exports fish and sea cucumbers from the Red Sea to markets in Europe and Asia, and there is hope that the construction of a new, jet-capable airport in
Massawa Massawa ( ;), or Mitsiwa, is a port city in the Semienawi Keyih Bahri Region of Eritrea, located on the Red Sea at the northern end of the Gulf of Zula beside the Dahlak Archipelago.Matt Phillips, Jean-Bernard Carillet, ''Lonely Planet Ethiopia and ...
, as well as rehabilitation of the port there, may support increased exports of high-value seafood. In 2002, exports were about 14,000 tons, but the maximum stable yield is thought to be nearly 80,000 tons. A fish processing plant was built in 1998 that now exports 150 tons of frozen fish every month to markets in
Britain Britain usually refers to: * United Kingdom, a sovereign state in Europe comprising the island of Great Britain, the north-eastern part of the island of Ireland and many smaller islands * Great Britain, the largest island in the United Kingdom * Ro ...
,
Germany ) , image_map = , map_caption = , map_width = 250px , capital = Berlin , coordinates = , largest_city = capital , languages_type = Official language , languages = German , demonym = German , government_type = Federal parliamentary republi ...
, and the
Netherlands The Netherlands ( nl, Nederland ), informally referred to as Holland, is a country primarily located in Western Europe and partly in the Caribbean. It is the largest of four constituent countries of the Kingdom of the Netherlands. In Europe, the ...

Netherlands
. Tensions with
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over fishing rights in the
Red Sea The Red Sea ( ar, البحر الأحمر ''Al Baḥr al aḥmar''; Hebrew: ''Yam Soof'' ים סוף or ''Hayam Haadom'' הים האדום; Coptic: ⲫⲓⲟⲙ `ⲛϩⲁϩ ''Phiom Enhah'' or ⲫⲓⲟⲙ ̀ⲛϣⲁⲣⲓ ''Phiom ̀nšari''; Tigr ...
flared up in 1995 and again in 2002, and Eritrea's difficult relations with other nations could hamper further development of the industry.


Animal husbandry

Sheep Sheep (''Ovis aries'') are quadrupedal, ruminant mammals typically kept as livestock. Like all ruminants, sheep are members of the order Artiodactyla, the even-toed ungulates. Although the name ''sheep'' applies to many species in the genus ''Ov ...

Sheep
,
goat The domestic goat or simply goat (''Capra aegagrus hircus'') is a subspecies of ''C. aegagrus'' domesticated from the wild goat of Southwest Asia and Eastern Europe. The goat is a member of the animal family Bovidae and the subfamily Caprinae ...

goat
s,
cattle Cattle, or cows (female) and bulls (male), are the most common type of large domesticated ungulates. They are a prominent modern member of the subfamily Bovinae, are the most widespread species of the genus ''Bos'', and are most commonly clas ...

cattle
(especially
zebu A zebu (; ''Bos taurus indicus''), sometimes known as indicine cattle or humped cattle, is a species or subspecies of domestic cattle originating in South Asia. Zebu are characterised by a fatty hump on their shoulders, a large dewlap, and someti ...
), and
camel A camel is an even-toed ungulate in the genus ''Camelus'' that bears distinctive fatty deposits known as "humps" on its back. Camels have long been domesticated and, as livestock, they provide food (milk and meat) and textiles (fiber and felt fr ...
s make up the majority of Eritrea's livestock. In 2001, Eritrea had 2,100,000 sheep, 1,700,000 goats, 1,950,000 head of cattle, 75,000 camels, and 1.4 million
chicken The chicken (''Gallus gallus domesticus''), a subspecies of the red junglefowl, is a type of domesticated fowl, originally from Asia. Rooster or cock is a term for an adult male bird. A younger male may be called a cockerel; a male that has ...
s. Total meat production that year was 30,900 tons; cow's milk, 39,200 tons; and eggs, 2,000 tons. The government is emphasizing development of agriculture and animal husbandry in order to decrease the reliance on international relief, caused by war.


Mining and minerals

Eritrea's substantial mineral deposits are largely unexplored. According to the Eritrean government, artisanal mining in 1998 collected 573.4 kilograms of
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79, making it one of the higher atomic number elements that occur naturally. In a pure form, it is a bright, slightly reddish yellow, dense, soft, malleable, and ...
, however the number of gold reserves is unknown. International observers also have noted Eritrea's excellent potential for quarrying ornamental marble and granite. As of 2001, some 10 mining companies had obtained licenses to prospect for different minerals in Eritrea. The government of Eritrea reportedly is in the process of conducting a geological survey for use by potential investors in the mining sector. The presence of hundreds of thousands of land mines in Eritrea, particularly along the border with Ethiopia, presents a serious impediment to future development of the mining sector. Nevsun Resources completed construction of its Bisha mining project in 2011. Estimated production will be 350,000 ounces of gold per year until the gold ore is exhausted, at which point the mine will produce copper and zinc.


Industry and Manufacturing

By the end the War of Independence, all industrial production had stopped due to the Ethiopians' nationalizing and breaking apart of Eritrea's largest factories, as well as the destruction of infrastructure by the weapons of the then Ethiopian government. The remaining plants were generally inefficient, and most of these industries required significant investment to achieve productivity. Since then, there has been a growth in industry. Manufactured items in 2002 included beverages, processed foods,
tobacco village in Xanthi, Greece Tobacco is the common name of several plants in the ''Nicotiana'' genus and the Solanaceae (nightshade) family, and the general term for any product prepared from the cured leaves of the tobacco plant. More than 70 s ...

tobacco
,
leather Leather is a durable and flexible material created by tanning animal rawhide and skins. The most common raw material is cattle hide. It can be produced at manufacturing scales ranging from artisan to modern industrial scale. Leather making has ...

leather
,
textiles A textile is a flexible material made by creating an interlocking network of yarns or threads, which are produced by spinning raw fibres (from either natural or synthetic sources) into long and twisted lengths. Textiles are then formed by w ...
, metal products, chemicals, printing, nonmetallic minerals, construction materials,
salt Salt is a mineral composed primarily of sodium chloride (NaCl), a chemical compound belonging to the larger class of salts; salt in its natural form as a crystalline mineral is known as rock salt or halite. Salt is present in vast quantities ...
,
paper Paper is a thin sheet material produced by mechanically and/or chemically processing cellulose fibres derived from wood, rags, grasses or other vegetable sources in water, draining the water through fine mesh leaving the fibre evenly distribut ...

paper
, and
matches A match is a tool for starting a fire. Typically, matches are made of small wooden sticks or stiff paper. One end is coated with a material that can be ignited by frictional heat generated by striking the match against a suitable surface. Woode ...
. The government sought privatization of these industries, and issued incentives such as exemptions from income tax, preferential treatment in allocation of foreign exchange for imports, and provisions for remittance of foreign exchange abroad. In 2002, there were approximately 2,000 manufacturing companies operating in the country. The oil industry has potential, as major oil deposits are believed to lie under the
Red Sea The Red Sea ( ar, البحر الأحمر ''Al Baḥr al aḥmar''; Hebrew: ''Yam Soof'' ים סוף or ''Hayam Haadom'' הים האדום; Coptic: ⲫⲓⲟⲙ `ⲛϩⲁϩ ''Phiom Enhah'' or ⲫⲓⲟⲙ ̀ⲛϣⲁⲣⲓ ''Phiom ̀nšari''; Tigr ...
. In 2001, the United States firm
CMS Energy 150px, CMS Energy headquarters in downtown Jackson CMS Energy (), based in Jackson, Michigan, is an energy company that is focused principally on utility operations in Michigan. Its principal business is Consumers Energy, a public utility that prov ...
entered into an exploration agreement with Eritrea for exploration in the Dismin Block in northeastern Eritrea. Due to high operating costs, the country's sole oil refinery, at Assab, was closed in 1997. It had a crude refining capacity of . The construction industry is growing, as projects range from the construction and expansion of power plants; road, airport, and dam construction; upgrading sea ports; and the construction of schools and hospitals. In 2005, industry had a 26.3% share of the GDP; since 2011, it has grown to 34%. Recent industries include food processing, beverages, clothing and textiles, salt, cement, and commercial ship repair.


Energy

Households consume more than 80 percent of total energy production. Electricity production in 2001 was estimated at 220.5 million kilowatt-hours. Consumption for that year was estimated at 205.1-kilowatt hours. An 88-megawatt electricity plant funded by Saudi Arabia, Kuwait, and Abu Dhabi was completed just south of Massawa in 2003, its completion delayed nearly three years by the war with Ethiopia. Annual consumption of petroleum in 2001 was estimated at 370,000 tons. Eritrea has no domestic petroleum production; the Eritrean Petroleum Corporation conducts purchases through international competitive tender. According to the U.S. Department of Commerce, opportunities exist for both on- and offshore oil and natural gas exploration; however, these prospects have yet to come to fruition. The use of Wind energy and solar power have slightly increased, due to the growth of solar power manufacturing companies in the country. The Eritrean government has expressed interest in developing alternative energy sources, including geothermal, solar, and wind power.


Services

In 2011, services accounted for 55 percent of gross domestic product. Financial services, the bulk of the services sector, are principally rendered by the National Bank of Eritrea (the nation's central bank), the Commercial Bank of Eritrea, the Housing and Commerce Bank of Eritrea, the Agricultural and Industrial Bank of Eritrea, the Eritrean Investment and Development Bank, and the National Insurance Corporation of Eritrea.


Tourism

Eritrea's lack of access to funds, the presence of large numbers of land mines, and the continued Eritrea-Ethiopia relations, tensions that flare up between Eritrea and Ethiopia have deterred the development of a tourist industry in Eritrea. According to the World Tourism Organization, international tourism receipts in 2002 were only US$73 million.


Banking and Finance

According to the International Monetary Fund, commercial banks in Eritrea—all government owned and operated—appear to be in compliance with prudent regulations. Although the commercial banking sector is largely profitable, mostly owing to income from foreign exchange transactions, the sector is burdened by a high proportion of non-performing loans. Core lending activities do not generate sufficient income to cover operating costs at most commercial banks.


Labor force

Agriculture employs about 80 percent of the population in Eritrea, and the remaining 20 percent are employed in industry and services. The GDP per capita at nominal value was $475 in 2011.


Currency, exchange rate, and inflation

The official currency is the Eritrean nakfa (ERN), introduced in November 1997. In early 2005, likely in an effort to increase foreign capital reserves, the Eritrean government decreed that all transactions in Eritrea must be conducted in nakfa. It soon became illegal for individuals to hold and exchange foreign currency. As of January 1, 2005, the government set the foreign exchange rate at US$1=ERN15. Inflation continues to be a problem in Eritrea, particularly as years of drought push grain prices higher and defense expenditures remain high. The International Monetary Fund estimates that in 2003 (the most recent year for which figures are available) average inflation reached 23 percent.


Government Budget

Eritrea does not publish a budget, making its fiscal condition difficult to assess. According to the International Monetary Fund, the overall fiscal deficit in 2003 was 17 percent of gross domestic product (GDP). Government expenditures for that year were estimated to be US$375 million, with revenues of only US$235.7 million. In 2002 the fiscal deficit was 32 percent of GDP. Current expenditures continue to exceed budgeted spending, particularly in defense and other discretionary expenditures. Monetary policy remains subservient to the financing demands of the government, and debt is unsustainably high. This situation is not likely to change until demobilization of the military occurs. According to the CIA World Factbook, the Eritrean Government has revenues of $715.2 million, and outlays of $1.021 billion.The World Factbook
CIA - The World Factbook


Foreign economic relations

China, South Korea, Italy, South Africa, and
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are aggressively pursuing market opportunities in Eritrea. There is growing interest in U.S. products and services in Eritrea, although U.S. investment in Eritrea is still small. In 2011, Eritrea imported goods worth US$899.9 million, including machinery, petroleum products, food, and manufactured goods. Eritrea's main suppliers were Brazil, China, Egypt, India, Italy, Germany, Saudi Arabia, and South Africa. In 2011 exports from Eritrea were valued at US$415.4 million, and the bulk were food, livestock, small manufactures, sorghum, and textiles. The major markets for Eritrean goods were China, Egypt, Italy, Saudi Arabia, Sudan, and the UK. More recently, fish, flowers, and salt have joined the list of exports. Foreign investment is hindered by government regulations that seek to protect domestic industries from foreign competition and by a generally unfavorable investment climate. Major foreign investors in Eritrea include China, South Korea, Italy, South Africa, and Germany, as well as the World Bank. The government prefers private-sector investment to official aid programs and declines foreign aid; therefore its relations with aid-dispensing nations and international institutions have often been difficult.


See also

*
Eritrea Eritrea ( ), officially the State of Eritrea, is a country in Eastern Africa, with its capital at Asmara. It is bordered by Ethiopia in the south, Sudan in the west, and Djibouti in the southeast. The northeastern and eastern parts of Eritrea ...
*Banking in Eritrea *List of companies based in Eritrea * United Nations Economic Commission for Africa


References


External links

*
Eritrea latest trade data on ITC Trade Map
{{DEFAULTSORT:Economy Of Eritrea Economy of Eritrea, African Union member economies, Eritrea