Doing Business in Eritrea: Possibilities for International Companies

In the Western countries people may still be unaware of a country like Eritrea.

• Where is this country at?
• What are the investment opportunities, etc. there?

Well, in this article, I hope to help you see these hidden features as well as the seemingly strange possibilities as doing business in Eritrea. The state of Eritrea, is a country in the Horn of Africa. The capital is Asmara. It is bordered by Sudan in the west, Ethiopia in the south and Djibouti in the southeast. The northeast and east of the country have an extensive coastline on the Red Sea, directly across from Saudi Arabia and Yemen. The Dahlak Archipelago and several of the Hanish Islands are part of Eritrea. Eritrea’s size is approximately 117,600 km2 with an estimated population of 5 million.

Eritrea got its independence in 1993 on the referendum. A two-and-a-half-year border war with Ethiopia that erupted in 1998 ended under UN auspices in December 2000. Eritrea hosted a UN peacekeeping operation that monitored a 25 km-wide Temporary Security Zone (TSZ) on the border with Ethiopia. An international commission, organized to resolve the border dispute, posted its findings in 2002. However, both parties have been unable to reach agreement on implementing the decision. On 30 November 2007, the Eritrea-Ethiopia Boundary Commission remotely demarcated the border by coordinates and dissolved itself, leaving Ethiopia still occupying several tracts of disputed territory, including the town of Badme. Eritrea accepted the EEBC’s “virtual demarcation” decision and called on Ethiopia to remove its troops from the TSZ that it states is Eritrean territory.

Ethiopia has not accepted the virtual demarcation decision. In 2009 the UN imposed sanctions on Eritrea after accusing it of backing anti-Ethiopian Islamic insurgents in Somalia.

This is a short overview of the situation with the state borders of Eritrea. The newest country in Africa, almost paradoxically, Eritrea is one of the most stable countries, though that did not happen without a cost.

The state is divided into six regions (zobatat, singular – zoba); Anseba, Debub (South), Debubawi K’eyih Bahri (Southern Red Sea), Gash Barka, Ma’akel (Central) and Semenawi Keyih Bahri (Northern Red Sea). Power is executed by the President (ISAIAS Afworki ), both the Chief of State and Head of Government and also the Head of the State Council and National Assembly. People’s Front for Democracy and Justice or PFDJ [ISAIAS Afworki] is the only party recognized by the government, however there are a number of political parties working there (Eritrean Democratic Party, Eritrean Islamic Jihad, Eritrean Islamic Salvation, Eritrean Liberation Front, Eritrean National Alliance and Eritrean Public Forum).

Since independence in 1993, Eritrea faced the economic problems of a small country. Eritrea has a command economy under the control of the sole political party, the People’s Front for Democracy and Justice (PFDJ), and like the economies of many African nations, a large share of the population, nearly 80%, is engaged in agriculture. Despite difficulties for international companies, working with the Eritrean Government, for example, a Canadian mining company signed a contract with the government in 2007 and began mineral extraction in 2010.

Eritrea’s economic future depends upon its ability to master social problems, and more importantly, on the government’s willingness to support a true market economy.

In 2010 the GDP rate in the country was $4.178 billion; the real growth rate – 4%; the division of the labour force by occupation is – agriculture: 80%, industry and services: 20%; 10.3% of GDP is investment; and 8% industrial production growth rate.

Doing business in Eritrea can be profitable and there are a number of business sectors to choose from. The different areas of business including the transportation sector (including air travel and car rental services) and shipping business. The banking sector, share market investments, real estate, computer oriented businesses, courier services, hotel business, insurance, photography, export and import business, insurance agencies, press and publication houses and travel agencies are the new sectors that are experiencing an unprecedented boom.

But the most important areas for big business are mineral resources, especially oil and gold (the Eritrean Government has started systematic inventories of the country’s mineral resources), oil, natural gas and agricultural products.

Starting private businesses in Eritrea is easy and certain formalities need to be fulfilled and sufficient investment made before businessmen can start. It takes between 76 to 89 days or maximum of 3 months to complete the thirteen stages of formalities.

Doing business in Eritrea has become the latest interest of international companies and can be profitable for both the company and the country. A number of metallurgical tests reveals that there are abundant gold reserves in Eritrea. Gold is mostly found in the Precambrian terrains of Asmara west. Many companies are actively involved in the process of mining gold in Eritrea.

For example, Sunridge Gold Corp. (Sunridge is a mineral exploration and development company focused on the acquisition, exploration, discovery and development of base and precious metal projects on the Asmara Project in Eritrea and exploration properties in Madagascar) is now running a program on Debarwa feasibility study (Debarwa copper-gold-zinc deposit located on the Asmara Project, Eritrea),  and already provides the results from newly received assays from ten diamond drill holes from the company’s Debarwa copper-gold-zinc deposit. The drill results from the current program (along with results from 35 drill holes completed in late 2009) will be used to update the resource estimate for Debarwa which is scheduled to be completed in March 2011 as part of the ongoing Debarwa feasibility study. Approximately fifty diamond drill holes have been completed to date in this current phase of drilling and approximately five more are planned before completion of this phase of work.  The other companies that work on the gold extraction are Nevson Resources, Sub Sahara Resource and others. Hence, there are a lot of opportunities of starting gold or diamond extraction in there.

The banks of Eritrea are very important in this context as the investment from the banking sector decides the progress in business. These are Central bank of Eritrea, the Commercial bank of Eritrea, the Eritrean Agricultural and investment bank and the Himbol Financial services.

Eritrea export commodities include machinery, foodstuff, building materials, manufactured food items, petroleum products and equipments for transportation. These items are exported to other countries, mainly India 25.3%, Italy 20.7%, Sudan 14.1%, China 12.9%, France 5.5%, Saudi Arabia 5.4%.

Eritrea oil industry is also a key element in business possibilities for big companies. There is considerable deposit of oil and natural gas along the Red Sea Coast and this resource can be recovered commercially. A large number of foreign companies, such as  Shell, Exxon, Mobil and Total, have been working in Eritrea on the extraction and marketing of oil and natural gas.

Agriculture is one of the most important economic sectors of Eritrea. There are about 966,000 acres of landmasses that are suitable for farming; 49,000 acres of land is used for cultivation. The main agricultural products are sorghum, lentils, vegetables, corn, cotton, tobacco, sisal, livestock, goats and fish. Eritrea has been granted admission to the ACP group of Third World countries, which receive preferential access to certain European Union markets, and it is now a member of the International Monetary Fund.

Concerning the taxation system, Eritrea is mainly dependent on indirect taxes. The indirect taxes in Eritrea are generally non-distributive. According to official sources, in 2008, the rate of tax collection in Eritrea had been about 16.7 %. Measures have been taken by concerned authority to raise the tax collection in coming years. The government in Eritrea is also carrying out the process of privatization. The tax system has reduced the tax rates on capital goods and raw materials. The tax system in Eritrea looks forward to better utilization of resources in the country. Eritrea taxes are applicable to any amount of income earned from any sources. Certain modifications have been made in both business and personal taxes. In case of sales tax and custom duties, alterations have been made to make their structure more simple and streamlined.

The long-running Ethiopian civil war left Eritrea’s economy in a perilous condition, which until 1991 was the northernmost province of Ethiopia. Since the split from Ethiopia in 1993, Eritrea has engaged in a series of military campaigns which have stunted its economic development. The most recent border war with Ethiopia cost Eritrea several hundred million dollars. But, as can be seen, the development of the economic and business capacities in Eritrea have become a crucial task for the government of the country. There have been a number of reforms made to increase the investment attractiveness of the country for the large international corporations. Labor force is an main element of the market of production for companies, and a growth in the level of education (technical or humanitarian) can help upgrade the output of labor force.

A lot still needs to be done, but with Eritrea’s history in country building, we can say that with time, it can achieve its goals.

By Iana Roginska