major macro economic indicators
|2014||2015||2016 (f)||2017 (f)|
|GDP growth (%)||1,7||0,3||2,2||3,4|
|Inflation (yearly average) (%)||12,3||12,5||12,0||11,7|
|Budget balance (% GDP)||-14,6||-10,7||-10,3||-9,9|
|Current account balance (% GDP)||-2,4||-3,4||-4,1||-4,5|
|Public debt (% GDP)||126,5||127,1||125,5||127,4|
(e) Estimate (f) Forecast
- Extensive mineral resources (potash, copper, gold, silver, zinc)
- Strategic position on the Red Sea
- Large public and external deficits
- Critical level of debt
- Country boycotted by the international community
- Concerning human rights record
- Extremely difficult business climate
Growth highly reliant on the mining sector
Because of the closing of the country to international institutions, it is difficult to find reliable data on the Eritrean economy.
Growth will increase in 2017. Private consumption, whilst it might receive a boost from remittances from workers abroad, remains contingent on climatic events, 70% of the active population earn most of their incomes from livestock and agricultural production. This sector has however experienced erratic growth, with the donors’ commitments being limited with regard to the need to optimise agricultural activity. The sector suffered from the 2016 El Niño phenomenon which created food insecurity for a large proportion of the population. The mining sector, which is expanding through the creation of joint-venture companies involving the country’s publicly owned mining companies and, mainly Chinese, private companies, is expected to continue to drive growth over the coming years. It will however remain below its potential because of poor government management, the diverting of resources to the armed forces and a lack of investment outside the mining industry. Bisha mine (copper and zinc) is currently the State’s main source of revenue (through taxes and its 40% holding), and copper is also the country’s leading export (30% of total export sales in 2014), ahead of seafood.
Operation of the Koka gold mine started in 2016 and the Asmara copper, zinc, gold and silver mine is expected to start production in 2017. This major project will consolidate the position of China (the mine is now going to be run, in cooperation with the public sector operator, by a state-owned Chinese company and not a Canadian group as originally intended) as the country’s leading investor, creditor and trading partner. This mine will help reduce the State’s reliance on income from the Bisha mine. Finally, production could start at the Colluli potash mine project in 2018 at the earliest.
Chinese companies continue to be involved in infrastructure projects. As part of this, the Hirgigo electricity plant was refurbished in 2016 and work on enlarging the port of Massawa is ongoing.
Inflation remains high because of the financing of part of the public deficit by creating money. A steadying in world food (the country’s biggest import) prices, together with a moderate recovery in agricultural production in 2017 will have a limited downwards effect on price rises. This inflation, exacerbated by a currency shortage, has resulted in an over-valuation of the nakfa, pegged to the US dollar.
A critical level of public debt
Public spending is struggling under the burden of the military budget, with revenues varying depending on levels of production and raw material prices. Public debt is at a very worrying level, all the more so given that the problematic relations with donors are preventing the country from being granted the debt relief it could potentially access as part of HIPC initiative (gross external debt however remains limited relative to domestically held debt).
In terms of the external accounts, copper and zinc exports are expected to increase in 2017 as production rises. In addition, base metal prices are likely to stabilise following the decline in recent years. Demand in China (2nd biggest buyer after India) is however slowing. The investments being made in the mining sector are likely to lead to increased imports of capital goods and services, and the cost of oil and gas imports should rise as oil prices slowly recover. The current account balance is expected to deteriorate, and will be exacerbated by the sanctions imposed by the United Nations that will continue to impact on remittances from workers abroad.
Strained relations with the International community
President Isaias Afwerki, in office since 1993, and the country’s single party, control all the levers of power. The regime has repressed most civil liberties and the human rights situation is of concern. A report issued by the UN in June 2016 accused the regime of crimes against humanity. In 2014 Eritrea was in fifth place as the world’s biggest source of refugees (4.5% of the population). Many of these are leaving to escape the compulsory unlimited-period National service in place since the war with Ethiopia (1998-2000).
Relations between Eritrea and most of the international community remain tense, as demonstrated by the renewal of its sanctions by the United Nations for 2017 (the country is in particular suspected of supporting armed groups such as Al-Shabaab in Somalia and Ethiopian rebel movements). The EU is however still providing financial aid and the country’s relations with China remain close. The country is also looking to diversify its diplomatic relations by working more closely with the Arab world.
Its economic development remains hampered by a highly problematic business climate (the country is in last place in the most recent Doing Business survey by the World Bank).
Last update: January 2017