Eritrean strangled economy hobbles on rocky path

ASMARA, May 29 (AFP) — A tight grip over businesses, a festering border dispute with Ethiopia, and recurrent drought are among the raft of stumbling blocks facing Eritrea as it seeks to boost its flagging economy.

Nur Nawar, 72, on the Elabered farm near Keren in Eritrea. The country’s agriculture industry has been hit by recurrent droughts, but thanks to an ingenious irrigation system the Elabered is faring well. (AFP) .

While celebrating the young tiny eastern African country’s independence this week, President Issaias Afeworki drew attention to the precarious state of his nation’s economy.

“We need to go a long way to resolve all our economic problems,” he said, while not outlining what strategy his government plans to employ.

The nation on the western banks of the Red Sea, which came into being in 1993, still has a long way to go to put key economic mechanisms, such as the privatisation of state firms, into motion.

An International Monetary Fund (IMF) report released earlier this year, said the country’s economy had mainly been dragged down by the government’s tight grip on key pillars of growth.

The report “highlighted the adverse impact of the widespread use of administrative controls, the expanding role of the state into commercial activities, and the lack of a transparent regulatory environment, which undermine investor confidence and private sector development.”

Apart from fuel rationing and currency control, moves that have alarmed western donors, the Asmara government runs essential sectors such as water, gas and electricity.

It also has a sizeable grip on the tourism and manufacturing sector, while it is difficult to establish what portion of the economy is under the control of the state or of the single party, the People’s Front for Democracy and Justice (PFDJ).

Eritrea rarely publishes its budget estimates, despite calls from the IMF and other major lenders for more transparency.

One diplomat estimated that about 40 percent of the country’s Gross Domestic Product (GDP) depends on the government, 30 percent on the PFDJ party and 30 percent on small scale agriculture and businesses.

One of the PFDJ leaders, Yemane Gebreab, disagreed, estimating that the party “controls five to 10 percent of Eritrean businesses”.

Officials, have, however, explained why the privatisation programme, launched at independence in 1993, failed in the country, whose population suffers from food shortages due to the recurrent drought.

In January, Issaias said most privatised firms were riddled by crises and headed for bankrutpcy, but insisted the government was keen to help resolve their woes.

“In general, almost all of them (privatised companies) are in crisis and are heading towards bankruptcy,” he said, explaining that the government had “to rectify the problem,” without using the word nationalisation.

The ministry of trade and industries offered reasons why privatisation, where attempted, had failed to solve a host of economic woes facing the tiny country, whose GDP is only 130 dollars.

The ministry’s spokesman Berhane Abraham cited “a shortage of foreign currency, of skilled manpower, of raw materials, and a shortage of potential markets for their produce”.

“We believe that all these shortages are a result of the current situation of no war and no peace,” with Ethiopia,” he said.

Eritrea won a 30-year struggle for independence, and fought a two-and-a-half-year border war with Ethiopia, which ended in December, 2000, with a fragile ceasefire brokered by the United Nations.

But the subsequent peace has been tampered by festering tension between the two poor foes, after Addis Ababa rejected the decision of an independent boundary commission.

Despite the difficulties, Berhane insisted that the government’s policy is to pursue privatisation, a line the diplomats shed doubt on.

To back their position, they argue that private firms face difficulties to import goods.

According to the IMF, Eritrea has stripped workers from the private sector by compulsory national service. Though official statistics are hard to come by, it is estimated that a broad slice of the workers earn half of the average salary.

“Moving ahead as rapidly as circumstances permit on the military demobilization program will be critical for bringing down the deficit to a sustainable level,” and for better “implementation of key economic reforms,” according to the IMF report.