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Economy of Eritrea

From Academic Kids

With independence from Ethiopia on May 24, 1993, Eritrea faced the economic problems of a small, desperately poor country. The economy is largely based on subsistence agriculture, which employs 80% of the population but currently may contribute as little as 22% to GDP. Export crops include coffee, cotton, fruit, hides, and meat, but farmers are largely dependent on rain-fed agriculture, and growth in this and other sectors is hampered by lack of a dependable water supply. Erratic rainfall and the delayed demobilization of agriculturalists from the military kept cereal production well below normal, holding down growth in 2002. Worker remittances from abroad currently contribute 40%-50% of GDP.

The small industrial sector consists mainly of light industries with outmoded technologies. Domestic output (GDP) is substantially augmented by worker remittances from abroad. Government revenues come from custom duties and taxes on income and sales. Road construction is a top domestic priority. In the long term, Eritrea may benefit from the development of offshore oil, offshore fishing, and tourism. Eritrea's economic future depends on its ability to master fundamental social and economic problems, e.g., by reducing illiteracy, promoting job creation, expanding technical training, attracting foreign investment, and streamlining the bureaucracy.

The expansion of the border conflict with Ethiopia, which broke out in May 1998, have drained away substantial resources vital to Eritrea's economic development severely hurt Eritrea's economy. GDP growth fell to zero in 1999 and to -1% in 2000. The May 2000 Ethiopian offensive into northern Eritrea caused some $600 million in property damage and loss, including losses of $225 million in livestock and 55,000 homes. The attack prevented planting of crops in Eritrea's most productive region, causing food production to drop by 62%. Even during the war, Eritrea developed its transportation infrastructure, asphalting new roads, improving its ports, and repairing war damaged roads and bridges. Since the war ended, the government has maintained a firm grip on the economy, expanding the use of the military and party-owned businesses to complete Eritrea's development agenda. Erratic rainfall and the delayed demobilization of agriculturalists from the military kept cereal production well below normal, holding down growth in 2002.

The Government of Eritrea states that it is committed to a market economy and privatization, and it has made development and economic recovery its priorities. The economy was devastated by war and the misguided policies of the Derg, which disrupted agriculture and industry. Much of the transportation and communications infrastructure that was not destroyed by the war is outmoded and deteriorating. As a result, the government has sought international assistance for a variety of development projects and has mobilized young Eritreans serving in the National Youth Service to repair crumbling roads and dams. Small businesses, such as restaurants, bars, stores, auto repair, and crafts continue to thrive in the Asmara area. A brewery, cigarette factory, small glass and plastics producers, several companies involved in making leather goods, and textile and sweater factories operate in the Asmara area. The textile and leather industries have made a particularly robust recovery since independence.

The Port of Massawa, destroyed by the Ethiopian Army during the final year of the war, is on its way to complete rehabilitation. With political stability and a liberal investment climate, Eritrea has begun to attract international businesses. Various U.S. and other Western concerns are planning to invest in tourism, mining, and offshore oil exploration.

GDP: purchasing power parity - $3.3 billion (3.3 G$) (2002 est.)

GDP - real growth rate: 3% (1999 est.); 2% (2002 est.)

GDP - per capita: purchasing power parity - $750 (1999 est.); $700 (2002 est.)

GDP - composition by sector:
agriculture: 17%
industry: 29%
services: 54% (2001 est.)

Population below poverty line: 53% (1993/94)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 15% (2001)

Labour force: NA

Labour force - by occupation: agriculture 80%, industry and commerce 20%

Unemployment rate: NA%

Budget:
revenues: $206.4 million
expenditures: $615.7 million, including capital expenditures of $NA (2000 est.)

Industries: food processing, beverages, clothing and textiles

Industrial production growth rate: NA%

Electricity - production: 220.5 GWh (2001)

Electricity - production by source:
fossil fuel: 100%
hydro: 0%
nuclear: 0%
other: 0% (2001)

Electricity - consumption: 205.1 GWh (2001)

Electricity - exports: 0 kWh (1997)

Electricity - imports: 0 kWh (1997)

Oil - consumption: 6,000 barrel/day (954 m³/d) 2001

Oil - exports: NA (2001)

Oil - imports: NA (2001)

Agriculture - products: sorghum, lentils, vegetables, maize, cotton, tobacco, coffee, sisal; livestock, goats; fish

Exports: $52.9 million (f.o.b., 1997); $20 million f.o.b. (2001)

Exports - commodities: livestock, sorghum, textiles, food, small manufactures

Exports - partners: Italy 36.9%, Germany 16.7%, France 10.3%, US 5.4%, Netherlands 5.2% (2002)

Imports: $489.4 million (c.i.f., 1997); $500 million c.i.f. (2001)

Imports - commodities: machinery, petroleum products, food, manufactured goods (2000)

Imports - partners: Italy 27.1%, US 15.7%, Germany 7.2%, Ukraine 5.8%, Turkey 5.5%, France 4.5%, Netherlands 4% (2002)

Debt - external: $311 million (2000 est.)

Economic aid - recipient: $77 million (1999)

Currency: 1 nafka = 100 cents

Currency code: ERN

Exchange rates: nakfa per US$1 = 9.5 (January 2000), 7.6 (January 1999), 7.2 (March 1998 est.)

Fiscal year: calendar year

See also : Eritrea

es:Economía de Eritrea

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