Asmara, (Shabait) 25 April 2010 – The existing favorable atmosphere in Eritrea has a vital role to play in rising productively both in term of quality and quantity, Stated Mr. Stifano Bonazi, an Italian national who is the general manager of the privately-owned ZA-ER Plant.

He explained that the plant has offered various training courses to about 500 Eritrean employees, and that it has managed to produce about 500 shirts and from 150 to 200 trousers on a daily basis.

Mr. Stifano further noted that the plant’s products are not only qualitative but are also being sold at a fair price, and that such products are highly demanded in the European, Asian and African markets. There are also plans to boost production up to 1,300 shirts and trousers on daily basis in the near future, he elaborated. He went on to say that the plant has 7 selling stations in different parts of the country, including 3 in Asmara, and each in Mendefera, Keren, Dekemhare and Tessenei.

The owner of the plant, Italian Zambayeti Jiancarlo, stated on his part that the task requires high caution and efficiency, and that it supplies up to 4,500 threads to the local and international market daily.

ZA-ER is a privately-owned plant set up in 2004, and at present it has about 500 employees.

World Trade Indicators 2009/2010

Trade Policy

Eritrea has made significant progress since independence in 1993 in liberalizing its trade regime. In 1994, the country radically reduced the number of tariffs and simplified its customs procedures. Its MFN Tariff Trade Restrictiveness Index (TTRI) ¹ is 5.8 percent, below the average for both SubSaharan Africa (SSA) (11.3 percent) and lowincome countries (11.6 percent). Tariff protection for agricultural products is much less restrictive (4.2 percent) than for non-agricultural products (8.5 percent). Based on the TTRI, it ranks 66^th out of 125 countries (where 1^stis least restrictive). The maximum MFN tariff imposed by Eritrea was 25 percent as of 2006.

As a step towards making its economy more open, the country is planning to launch a free trade zone at its Massawa harbor later in 2009 to attract foreign investment. With this free trade zone, Eritrea would remove trade barriers such as taxes and quotas and minimize bureaucracy at the harbor, encouraging further trade.

External Environment

According to Eritrea’s Market Access TTRI² (including preferences) of 0.9 percent, the country’s exports face much lower barriers than an average SSA (3.9 percent) or low-income country (5.6 percent). Similarly, the weighted average overall rest of the world tariff (including preferences) faced by the country is a relatively low 1.7 percent, with 3.1 percent for agricultural products and 1.4 percent for non-agricultural products. The Eritrean currency, the nakfa, which is pegged to the U.S. dollar, depreciated by 7 percent against the euro in 2008, making the country’s exports less expensive in foreign currency terms.

Eritrea belongs to the seven-member Intergovernmental Authority on Development (IGAD), which is currently planning to create a free trade area. The country is also a member of the Common Market for Eastern and Southern Africa (COMESA), which established a customs union in June 2009 and plans to fully implement it in 2012. As negotiations between the Eastern and Southern Africa (ESA) group and the EU towards a full Economic Partnership Agreement (EPA) could not be completed prior to the December 2007 deadline, the preferences under the Cotonou Agreement elapsed. Eritrea, however, maintains a similar level of preferences to the EU market under the “Everything But Arms” (EBA) initiative for least developed countries. The country continues to negotiate a comprehensive EPA with the EU as part of the ESA group. The country is neither a member of the WTO nor an applicant for membership.

Behind the Border Constraints

Eritrea ranks in the bottom 5 percent of friendly business environments according to the Ease of Doing Business index, on which it ranked 175^th out of 183 countries in 2009. The latest Doing Business Report 2010 is available here: DOING BUSINESS 2010

Reflecting the extent of trade facilitation in the country, Eritrea’s score on the Logistics Performance Index (LPI) is 2.19 on a scale of 1 to 5, compared to the averages of 2.35 and 2.29 for its SSA and low-income comparators, respectively.

It ranks 124^th (out of 150) in the world and 29^th(out of 39) in the SSA region (with South Africa leading the regional group). Among the LPI subcategories, its strongest performance is in lowering domestic logistics costs while its weakest performance is in ensuring the timeliness of shipments in reaching their destination.

Trade Outcomes

Real trade growth (in constant 2000 US dollars) is estimated to have been only 3.7 percent in 2008, although this is a significant improvement over the contraction of 1.6 percent in 2007. Growth will remain positive in 2009 but at a lower rate of 1.8 percent. Imports increased by an estimated 3.9 percent in 2009 after falling by 1.5 percent the year before, while exports grew by an estimated 2.7 percent following a 2.3 percent fall in 2007. Both imports and exports are expected to continue to register positive growth in 2009, albeit at lower rates of 1.7 percent and 2.1 percent, respectively.

In nominal terms, trade growth accelerated to an estimated 12.7 percent in 2008 from 5.2 percent in 2007. While import growth rose from 1.2 percent in 2007 to an estimated 11.7 percent in 2008, driven in part by high food and oil prices, export growth fell from 29.8 percent to an estimated 17.5 percent. Services exports grew at an estimated rate of 8.6 percent in 2008, compared to 24.2 percent in the previous year, and are expected to fall by 0.3 percent in 2009.

Goods exports experienced a very high estimated growth of 45.8 percent in 2008, a little lower than the growth rate of 51.5 percent in 2007, but are expected to grow by only 0.7 percent in 2009. The recent discovery of gold is expected to boost exports in the near future, with the country’s Bisha gold mine scheduled to begin production in 2010.

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Unless otherwise indicated, all data are as of August 2009 and are drawn from the World Trade Indicators 2009/10 Database. The database, Country Trade Briefs and Trade-at-a-Glance Tables, are available at http://www.worldbank.org/wti.

If using information from this brief, please provide the following source citation: World Bank. 2010. “Eritrea Trade Brief.” World Trade Indicators 2009/10: Country Trade Briefs. Washington, DC: World Bank. Available at http://www.worldbank.org/wti.

Notes

1. TTRI calculates the equivalent uniform tariff that would keep domestic welfare constant. It is weighted by import shares and import demand elasticity.

2. MA-TTRI calculates the equivalent uniform tariff of trading partners that would keep their level of imports constant. It is weighted by import values and import demand elasticities of trading partners.

References

Capitaleritrea. 2009. “Eritrea to Attract Investors with Free Trade Zone at Sea Ports.” Capitaleritrea. May 19, 2009. <http://www.capitaleritrea.com/2009/ 05/19/eritrea-to-attract-investors-with-free-trade-zone-at-sea-ports/>.

COMESA. 2009. “COMESA Launches its Customs Union.” COMESA. July 24, 2009. <http://www.comesa.int/lang-fr/component/ content/article/168-comesa-launches-its-customs-union>.

Europa. 2009. “Africa, Caribbean, Pacific—Regional Negotiations of Economic Partnership Agreements.” Europa. June 2009. <http:// ec.europa.eu/trade/issues/bilateral/regions/acp/ regneg_en.htm>.

The Economist Intelligence Unit (EIU). 2009. “Country Report—Eritrea.” EIU. May 2009. <http:// countryanalysis.eiu.com/country_reports>.

The Intergovernmental Authority on Development (IGAD). 2008. “IGAD Member States and Development Partners Discuss Minimum Integration Plan for the Region.” IGAD. November 4, 2008. <http://www.igad.org/index.php?option= com_content&task=view&id=194&Itemid=64

Eritrea said on Wednesday that its economy will be unaffected by the U.N. sanctions imposed on the nation, which were an international response to Asmara’s alleged support of Islamist rebel groups in Somalia.

Punitive measures including an arms embargo, travel restrictions and asset freezes for some of the country’s top officials raised fears the limitations may slow an economy reliant on financial and moral support from the diaspora.

Remittances from Europe, the United States, the Middle East and other African nations are Eritrea’s biggest source of foreign exchange. Analysts say they continue to flow because high-ranking Eritreans travel to other countries and drum up support for the Red Sea state.

Eritrea has dismissed concerns saying sanctions would not slow development.

“The sanctions should not have any impact on investment, no impact on trade, or Eritrea’s external ties with its economic partners,” Yemane Ghebremeskel, director of the Eritrean president’s office, told Reuters in an interview.

“Our development strategy is not really based on injections of development assistance anyway. There are still extensive development plans in place designed to enhance productivity and expand services in education and health,” he said.

The country would build more than 50 new schools this year, he said.

The U.N. imposed sanctions last month because Security Council members say Eritrea has given support to Islamist insurgents in Somalia who are battling the U.N.-backed transitional government. Violence in the Horn of Africa nation has killed at least 19,000 people since the start of 2007.

‘IT’S WEDDING SEASON’

Yemane said average Eritreans were disappointed in the United Nations over the sanctions but they remained fairly indifferent to the measures themselves.

“They know these sanctions have nothing to do with justice or international law. People don’t give it undue weight — it’s January, wedding season, people are getting on with their business and going to parties,” he said.

Yemane reiterated the view of President Isaias Afwerki that the sanctions are baseless and contravene international law.

“Those sanctions are not based on international law. The accusations have not been proved and Eritrea has not been given the opportunity to make its case on an independent platform.”

Last week the President told local media that no solid facts have been produced against Eritrea and no proper legal procedures have been applied to discover the truth.

“In the final analysis, the conspiracy was essentially masterminded by U.S. intelligence agencies, especially the CIA,” the President said.

Eritrea’s economy contracted sharply in 2008 while inflation surged to double digits, according to the International Monetary Fund, but better rains in 2009 could have boosted growth to about 3.5 percent. Source: (Reuters)

Horn of Africa

London based think tank Chatham House published a briefing paper on economic drivers of conflict and cooperation in the Horn of Africa.

According to the research agency, economic relations between nations in the Horn of Africa could play a vital role in bringing peaceful cooperation to the region. However, disagreement over territorial integrity, cultural nationalism and internal factionalism have economic elements which fuel conflict or are critical to its outcome.

Further, it states the Horn of Africa remains highly violent and conflict driven within and across national borders. The fact that the region is linked together through colonial occurrences, common ecological zones and cultural interdependence, explains why disputes in one country can have political and economic significance beyond its borders.

The termination of trade between Eritrea and Ethiopia after the 1998-2000 war represents an economic driver of conflict, the report states. The border closure between Eritrea and Ethiopia caused all Ethiopian trade to be redirected via Djibouti.

The growth of trade volumes via Djibouti went up from 1.7 million tonnes in 1997 to 3.1 million tonnes in 1998 and 4.2 million tonnes in 2002. Before the conflict the port of Assab was handling 80 – 85% of Ethiopia’s international trade, with only 15 – 20% passing through Djibouti.

According to the think tank a possible return of trade between Ethiopia and Eritrea will depend on a number of factors;

• The degree of development in the economic infrastructure of  Tigray
• The availability of finance to upgrade the ports of Massawa and Assab
• The degree of competitive measures applied from Djibouti
• Low cost operation costs at ports in Somalia (Berbera port fees 40% lower than those in Djibouti)
• The development of relations between Eritrea and Ethiopia
• The alternative of road supply routes with Sudan (cheap import and exports- only 45km from Tessenei)

For  more: plesae visit the Chatham House Web page

Summary points:

• Among the drivers of conflict in the Horn of Africa economic motivations have been ubiquitous and pervasive in prompting and sustaining conflict. At other times economic drivers have exhibited a potential for peaceful cooperation. An understanding of their role and relationship with other forces of change is essential.
• Conflict in the Horn frequently has economic impacts across national borders. This paper identifies four major zones of borderland insecurity in which informal trade as much as formal relationships can both sustain conflict and offer potential for post conflict cooperation.
• Underlying the various sub-regional conflicts are a number of recurrent economic themes, including access to sea ports, livestock as a basis for livelihoods, energy related issues, the wider impact of localized conflict, drought, land rights and remittances.
• The establishment of permanent peace can only be built upon a common set of values reflecting equity, tolerance and an acknowledgment of the potential of traditional institutions in entrenching community cohesion. Only on such a foundation will specific programmes be assured of harnessing those economic drivers necessary for their success.

By Olad Hassan

Zimbabwe is entering a new era in relations with the world amid signs of increasing investor interest and the ongoing negotiations between ZANU PF and MDC to lay out a new political direction for the country.

The list of talks and events is long, starting from the meetings between the country’s two main parties on issues such as power sharing, government posts, economy and media reforms to this week’s ZANU PF party congress, where delegates are going to discuss the future of the party and who is going to continue leading ZANU PF.

On the side lines the country’s Finance Minister has recently announced that the Zimbabwean economy (GDP) will grow by 7 percent in 2010. The budget for next year includes a reduction of corporate tax to 25 percent from 30 percent, a move welcomed by companies and investors. The Minister hopes that a substantial part of the money for the Budget will come from the countries vast mining resources.

Investors should look out for Zimbabwe as a potential investment opportunity as mining shares seem to be undervalued given the vast mining potential of the country.

However, analysts say as long as there is no better access to capital for mining companies and no trustworthy unity government in place investors should be cautious to gamble their money.

At the other hand shares of mining companies in Zimbabwe can be obtained at a very low price which might yield high returns in future. Bargains always come with a risk and Zimbabwe certainly appears to be an uncertain destination for investors.

But the fact that mining companies in Zimbabwe are re-opening and some have already managed to find financiers in order to start production is encouraging.

For example the Chinese ahead of time entered the mining market and recently expressed their interest to upgrade the countries transport infrastructure. Western companies such as Anglo American announced to invest millions in order to explore platinum and several locally owned mines have by now started producing and exporting natural resources.

Companies to watch out are:

Mwana Africa PLC. (LON:MWA)

Caledonia Mining Corporation (OTC:CALVF)

Premier of China

The Chinese government is committed to assisting African countries in improving their agricultural production and infrastructure and promoting socioeconomic development through the provision of preferential credit, said Chinese Commerce Minister Chen Deming here Monday.

“Thanks to our concerted efforts, China-Africa cooperation in agriculture and infrastructure has experienced leaps and bounds over the years,” Chen said on the second day of the fourth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC).

“Such cooperation has diversified in forms, increased in size and moved to high levels,” Chen added.

The Chinese minister of commerce said China will continue to pursue the agenda of “friendship, cooperation and development” with African countries by advancing bilateral trade and commerce and by contributing to agricultural development, food security and infrastructure building in Africa on the basis of mutual benefits and win-win principle.

Chen proposed four points to promote cooperation between China and African countries in the future.

First, improving Africa’s capacity for agricultural production. “In the next three years, China will organize 50 groups of agricultural experts to Africa for transferring and disseminating agro-technology and for putting into place a system of agro-technology promotion among African countries,” he said.

Second, actively pursuing an innovative model of China-Africa agricultural cooperation. He said that China will continue to encourage competent and reputable agro-businesses to invest in Africa, and transfer and deploy China’s technology and managerial expertise in agriculture.

Third, enhancing cooperation in infrastructure building. The minister said “China continues to identify infrastructure as a priority for China-Africa cooperation and will intensify investments in infrastructure projects across Africa.”

Fourth, creating platforms for the cooperation of Chinese and African businesses. Chen noted that “Business is on the forefront of deepening China-Africa cooperation in agriculture and infrastructure. The governments of China and Africa should work closely and make good policies, but more importantly, leave businesses to the laws of the market.”

The fourth FOCAC ministerial meeting opened in the Egyptian Red Sea resort of Sharm el-Sheikh on Sunday.

The main agenda of the conference is to review the implementation of the follow-up activities of the FOCAC Beijing Summit and the third ministerial conference and explore new initiatives and measures on Sino-African cooperation in priority areas such as human resources development, agriculture, infrastructure development, investment and trade. Source: (Xinhua)

IMF

ASMARA, Eritrea September 29, 2009/African Press Organization (APO)/ — An International Monetary Fund (IMF) mission visited Eritrea during September 14–29, 2009 to conduct the 2009 Article IV consultation discussions.

The last Article IV consultation was concluded in April 2008. The mission met with Mr. Ali, Minister of Energy and Mines, Mr. Woldemariam, Acting Governor of the Bank of Eritrea, Mrs. Woldeghiorghis, Director General of the Treasury and Mr. Tesfaldet, Director General of the Budget (both in the Ministry of Finance), other senior officials, and representatives of the international community and civil society.

The mission is grateful to the authorities for their very warm hospitality and fruitful discussions. Mr. Mario de Zamaróczy, mission chief for Eritrea, issued the following statement today in Asmara:

“The mission reviewed economic developments since the last consultation and discussed the authorities’ macroeconomic policies against the backdrop of a severe drought in 2008, the international food and oil price crises, and the global recession. In the wake of these exogenous shocks, Eritrea’s economic performance has weakened, with growth remaining elusive, while inflation has accelerated and progress in fiscal consolidation, stalled.

“The mission noted a number of areas where progress had been made. These included continued investment in agricultural and irrigation projects to wean the country’s farming industry progressively away from dependence on irregular rainfall; public investment program in targeted key sectors, such as education, health, mining, infrastructure, cement production, tourism, green energy, and fisheries. These investments are expected to contribute to a resumption of growth in the medium term. However, even with the positive impact of forthcoming mining and cement productions, Eritrea’s medium-term outlook could present downside risks. The mission expressed concerns with regard to the size of the fiscal and current account deficits, external and domestic debt levels, and high inflation. Growth, even with the maturation of earlier investments, may remain below the level necessary to achieve a significant reduction in poverty.

“The policy discussions centered on a number of possible policy measures to rekindle economic growth and private sector activities. In the short run, the focus should be on restoring macroeconomic and financial balances, through fiscal consolidation; reducing banking sector financing of the budget deficit; and relaxing import and exchange controls to re-launch imports of basic and intermediary goods. As global pressures recede, it would be important to bring inflation under control through restrained fiscal and monetary policies. The government’s expenditure prioritization efforts were identified as key to raising the effectiveness of public outlays in a resource-constrained environment. In the medium term, the focus should be on measures that promote external competitiveness; liberalization of the financial sector; removal of administrative bottlenecks; and promotion of private investment in the productive sectors. The mission believes that with the right set of reform policies and building on the country’s rich human and mineral resource potential, Eritrea could be well placed to rebound as the world recession wanes.

“The mission welcomed the authorities’ renewed interest in drawing on the IMF’s and other donors capacity-building assistance to develop institutional and human capacity in the civil service. The mission noted that the IMF’s East Africa Regional Technical Assistance Center (East AFRITAC) was well placed to provide technical assistance on a grant basis.

“It is expected that, subject to IMF management approval, the IMF’s Executive Board will consider the mission’s report in December 2009.” Source: (IMF)

The AU is calling on the Security Council of the United Nations to implement sanctions against Eritrea.

These sanctions can imply the suspension of trade relations, rail, sea, air, postal, telegraphic, radio as well as the severance of diplomatic relations with a state.

For countries such as Eritrea being able to import goods and services for the national economy can mean the life line for survival. 

The threat of sanctions on goods and services in hand with the introduction of tariff and trade barriers, import duties as well as import and export quotas would cause heavy administrative fences for Eritrea. This would make it nearly impossible for a country to supply for the needs of its people.

Eritrea is already one of the poorest nations in the world, with an average yearly per capita income of $US 200 and ranking 157th out of 177 states in the World Development Index (World Bank 2006). Thus, it seems obvious that the introduction of sanctions could have a crushing impact on trade and food security levels for the population of Eritrea.

Especially, as the country is already highly vulnerable to external factors such as commodity prices and foreign exchange flows.

Previous examples of countries which have been sanctioned resulted in impoverishment, increase of child mortality and the lack of elementary items for living. This has led to a majority of people not being able to feed themselves, the GDP falling extremely and the gradual run down of necessary facilities.

In the eye of the increasing economical advances made in the country, the call to sanction Eritrea by neighbouring countries is definitely representing an ethical and humanitarian injustice against the people living in Eritrea.

The WHO has stated recently that good progress has been made in Eritrea to improve life expectancy for its people. 

For the first time in years, foreign investment seems to not be scared away from the nation in the Horn of Africa and willing to provide with heavily needed foreign exchange. 

Further, the World Bank is underlining that the prospect to ensure food security, develop human resources and physical infrastructure has improved for Eritrea. Moreover, the World Bank is referring to the positive outlook for economical growth with the introduction of a free trade zones as well as the development of the mining sector in Eritrea.

Between 2005 and 2007 Eritrea had an average GDP growth rate of 1%. Experts have estimated that Eritrea requires a sustained real economic growth of 7% or higher in the long term, to reach its Millennium Goal to reduce the number of people living in extreme poverty by 50% until 2015.

Being in the middle of  an economical downturn is definitely not going to be a very easy situation for many people around the world. Nevertheless, it is a periodic occurrence, which is necessary to put things right in a world living too often beyond its means.

Eritrea has been on the track of self-reliance since the independence gained from Ethiopia in the beginning of the Nineties. In many fields, such as humanitarian aid, foreign investment exposure and transport infrastructre, it chose directions apart from the norm of other African countries.

Of course this is the harder way to go for a nation and often difficult to comprehend, because it requires sacrificing in first instance. Moreover, for many years Eritreans have lived far below their means for the sake of their nation and national identity. While others, which  now have to come into terms with the bubble burst, used to know no limit.

Thus in times of recession individuals, corporates, national economies and the world tend to lay out their cards newly because it resembles a period of chance, thoughtfulness and self scrutiny.

This is also a chancel for Eritrea to enter into a new relationship in respect to international trade. Especially as a nation, which has a big tourism potential, is soon to enter into the mining industry and is opening its sea ports for free trade.

On the preparations for the upcoming Eritrean National Day on the 24th May 2009, the President of Eritrea has explained to Reuters News Agency, how the country is going to approach these challenges.

“The Norwegians would like to talk about 150 years from now. The Nigerians may want to exploit all their oil resources in 10 days or 10 hours or maybe 10 years, and that’s it, you’re finished. This is a resource of generations.” (President Isaias Afwerki of Eritrea on Reuters News Agency)

The President believes that economical stimulation has to be sustainable in order to fit a nations characteristic of infrastructure. Therefore, he suggests that instead of a tempting short term approach, Eritrea should seek for a more adequate pace to manage the exposure to a free market and a influx of foreign investment. This would be the only way how to best serve Eritrea’s interests for todays and the coming generations ahead.

According to Araia dozens of companies have already registered, because Eritrea’s ports are located along the busiest shipping routes of the world. Further, he outlined that approximately 20.000 ships loaded with 700 million tonnes of cargo, which is around 9% of the total global freight market, would pass each year the coast of Eritrea.

The country is said to have invested millions of $US for the infrastructure of the harbour and airport in Massawa. There are already around 12 companies from countries such as China, Italy, Israel, India, Djibouti, Sudan and Dubai, which have registered under the scheme.

Araia points out that the competitive advantage of Massawa or Assab lies in the low labour costs compared to ports such as Dubai, Djibouti or Aden. Although, Eritrea is aware of the fierce competition from neighbouring countries, it believes it can tap into the niche market of small scale freight operations. Because, small companies would shift away from expensive harbours in the region in favour of the less expensive Eritrean ports. Thus, the initial strategy would be to focus on small cargo business first.

Eritrea’s second and strategically better located port Assab, due to it’s closer location to the Indian Ocean, will follow Massawa into the free trade zone in 2010. Eritrea hopes with this measures to stimulate economical activities in the country as well as to lay the foundation for a good soil of future trade with the world.

According to the Qatar News Agency, Sheikh Abdullah bin Zayed Al Nahyan met on Sunday with the President of Eritrea in Asmara, in order to discuss bilateral relations on investment, economy and trade. The UAE Foreign Minister is currently visiting several African countries in order to strengthen ties with the continent. Read more: QNA