Eritrea: Strangled economy hobbles on rocky
path
29 May 2005
ASMARA (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.
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.
