FEATURE-Tensions with Ethiopia hurt Eritrea’s “war economy”

By Katie Nguyen

ASMARA, Dec 28 (Reuters) – A huge sculpture of a pair of sandals, the type favoured by fighters in Eritrea’s 30-year independence struggle, dominates Liberation Avenue, the main boulevard in the capital Asmara.

An Eritrean soldier stands on a mound of earth behind his front line trench at Tsorona.

The monument is a constant reminder of war in a country whose peasant economy remains burdened by its mobilisation against Ethiopia, on alert for renewed conflict with the neighbour it fought so long to break free from.

Once allies, the current governments of Ethiopia and Eritrea blasted their way to power in 1991 after fighting rebellions to oust Ethiopian dictator Mengistu Haile Mariam.

Eritrea won independence two years later to become Africa’s youngest sovereign state.

Efforts to rebuild the Horn of Africa country were frustrated when a scrap with Ethiopia over the border town of Badme escalated into full war between 1998-2000, forcing hundreds of thousands of people to flee the fighting.

Despite the end of the war that killed 70,000 people, the border row continues to fester with a peace process deadlocked over an independent commission’s ruling on where the 1,000 km (620 miles) frontier should be demarcated.

Many in Ethiopia still oppose the loss of Eritrea and its strategic Red Sea ports, and Addis Ababa has rejected the ruling that awarded the prized town of Badme to its former province.

The stalemate is taking its toll on Eritrea’s economy, already crippled by four successive years of drought.

“The stalling of the peace process is absorbing our human resources and financial resources because we are in a defensive position. It’s a critical juncture,” said Teclemichael Woldegeorgis, deputy commissioner of the government-funded Eritrean Relief and Refugee Commission.

“Until 1998, we were on the path to speedy growth. In 1997, we even stopped asking for food assistance,” he added.

BORROWING FOOD

Economic prosperity is now a long-forgotten dream for many Eritreans. With a per capita gross domestic product (GDP) of about $130, it is one of the world’s poorest countries, scraping a human development index ranking of 156 out of 177 countries.

“I borrow food from friends and neighbours. There’s no option because everything is getting expensive,” said Tebreh Berhe, a 58-year-old widow trying to make a bit of money selling grilled corn cobs on the side of the road.

The government has fixed the exchange rate at 13.5 Eritrean nakfa/U.S. dollar, but on the black market a dollar easily fetches more than 22 nakfa.

“Life is getting worse and worse. All we can do is pray that things will get better,” Berhe said.

Starved of rich agricultural land, Eritrea used to rely on trade through the ports of Assab and Massawa for its main source of revenue. Hostile relations with giant neighbours Ethiopia and Sudan have strangled cross-border trade.

An International Monetary Fund report on Eritrea says annual exports have plummeted by more than half over five years to $80 million in 2003 from $200 million in 1997.

Foreign exchange reserves needed to pay for imports are at critical lows, the IMF says. It blames, in part, high levels of spending on defence, emergency reconstruction and aid programmes for Eritrea’s stretched finances.

Money from Eritreans living abroad helps keep the economy afloat, and has averaged 45 percent of GDP since independence.

“I don’t see a medium to long-term strategy in this country,” said a diplomat, who did not want to be named.

“It is not yet at peace with Ethiopia and so it is still functioning on a war economy. They’ve undergone 30 years of suffering and they believe they can endure more.”

Presidential adviser Yemane Ghebremeskel said the economic problems faced by Eritrea were short-term hitches.

“If you take the long-term view, prospects are high. The potential (for growth) is there whether in mining, agriculture, fishing or tourism,” he told Reuters.

FUEL SHORTAGES

Eritreans pay a high economic and personal price for constant readiness for war. Basics like milk, sugar and flour are hard to get even in towns. Fuel shortages have led to petrol rationing.

With more dry spells to come, the government says next year two-thirds of the population of more than three million will be forced to rely on food hand-outs to survive.

Some residents say security forces periodically sweep the capital, taking young men from buses and houses to check if they have completed their mandatory national service duties.

Residents complain that these days demobilisation cards are no protection against husbands, sons and brothers being spirited away to a mountainside military camps for more training.

The mobilisation of the able-bodied is draining the country of workers otherwise able to tend fields, fish or staff hotels.

Eritrea lays the blame for economic stagnation firmly at Ethiopia’s door, pointing out that Ethiopia has yet to fully accept the 2002 ruling by an independent commission set up under the peace treaty to settle the border dispute.

Major powers are unanimous in saying reopening negotiations on the border — which Ethiopia has hinted it wants — would go against promises both countries made to be bound by the ruling.

“How can Eritrea and Ethiopia discuss cross-border trade when the border is not known? How can you discuss a customs union when our territory is occupied forcibly and when the clouds of war are looming on the horizon?” said Ghebremeskel.

A border settlement would pay dividends for everyone, Ghebremeskel said.

“I think it (a settlement) will be a win-win situation, because then instead of spending mega-resources on defence, I think the focus of Ethiopia, the focus of Eritrea, will be on mutual cooperation and on development.”

(Additional reporting by William Maclean)