Massawa

By: Berhane Woldu

If there is ever a region that epitomizes the economic future of Eritrea, it’s the Northern Red Sea Region. A frenzied sprawl of 1 million people it’s the second largest region in Eritrea.

It’s also a place where you will find six ethnic groups live together in harmony. At one recent colloquium conducted by the Governor of the region it was explained the various economic developments and the exploitation of natural resources such as agriculture, fisheries, tourism and mining.

All this speaks to Eritrea’s new growth path, one that is defined by Eritrean’s and Eritrean demand, rather than outsiders. The epicenter of the new growth is the country’s vast coastal expanse and the vast plains that are conducive for agricultural investment. While economist inside and outside Eritrea are bearish on Gold export from Bisha, Gash- Barcka region, it will be extremely bullish on the prospects of the Northern Red Sea Region which enjoys higher growth rates, favorable government policy, and the possibility of a huge consumption binge. Northern Red Sea Region also happens to be where the free zone ports of different size, 220 coral reefs and over 1000 fish species and virgin natural resources; oil, natural gas, iron ore, and lime stone are located. Mineral resources embedded on various areas of the region such as copper, gold, gypsum, granite, marble and ceramics. But while foreign firms are salivating over the potential gains to be had from all this, it’s the Eritreans themselves, rather than outsiders, who will tap them.

State-owned industries are an important factor in the nation’s economy. The basis for public intervention in the economy is the system of state holdings regulated by the ministry bearing that name, established in 1991; it representing a necessary tool by means of which the state can exercise control over, and act directly in, the country’s development, causing it to reach those results dictated by state economic policy. The state’s political authorities thus assign the economic policy objectives deemed necessary, and the agencies autonomously see to their desired outcomes. These agencies are: Ministry of Fisheries, Massawa Port Authority, Ministry of Education and many more who jointly work with the regional administration to implement the set goals and achieve the desired outcome in the domains of agriculture, fisheries, tourism, trade and industry, social services and infrastructural developments.

Development policies have now been put in place. The construction of Massawa airport, the Free Economic Zone, the expanding and reconstructing of ports, construction of oil jetty and the construction of cement fabric that is expected to produce 10,000K per day are some of the developments that have been achieved in the region.

Last year the government announced new Massawa infrastructure projects totaling 1 billion nakfa, even more than the 2009 figure. But unlike in the 2002 to 2008,Eritrea has the financial resources, experience, expertise and confidence it gained to build the country from zero economy to where it is today on its own.

What’s more, the fact that the region is rich in natural resources and borders politically troublesome areas like Ethiopia, Sudan and Yemen means that the regional government is more likely to want to exert greater control in commercial affairs.

The central government has given the coast more investment in the domains of agriculture, fisheries, tourism, trade and industry. The development of theNorthern Red Sea region is a study in state-led capitalism. Over the next 5 years, there’s going to be a huge shift in the nature of private investment in Eritrea; much more of the money is going to come from Eritrea rather than foreigners. In the wake of the 2009 world financial turmoil and still mired in fiscal retrenchment and tighter credit conditions, capital is becoming scarce and more expensive; hence, mobilization of internal capital as an alternative source of capital is essential to Eritrea. Eritrea’s current emphasis on balancing its economy towards domestic demand also means less of a golden handshake for foreign companies.

The sectors such as telecommunication, agriculture, and electricity are off limits to foreigners. Now, with the focus on agriculture, over 90,000 hectares have been utilized and a number of agricultural infrastructure programs have been implemented which increase domestic consumption. Local firms will have leg up in the growing region where no multinationals have yet to venture. Foreign firms’ relative lack of business experience in a region where culture, equality, mutual interest, ideology, trust, and relationship with the local bureaucracy play an even larger role is a major disadvantage. Even if all things were equal, basic geography will always favor costal area development. Transport costs are much higher for foreign firms than they are for domestic firms, and the proximity and cultural similarity of countries like Yemen and Arabia favor regional partnership rather than ventures run by Western multinationals.

In a highly stressed global economy, it’s wise to look internally and focus on Northern Red Sea Region long-term competitive advantages.

Chinese Cargo

New equipment, technology, knowledge and skills are rebuilding a proud nation

Blessed with large deposits of precious minerals such as gold, silver, copper and zinc, Eritrea offers foreign investors a wealth of opportunities in the mining sector, while the agriculture, tourism, fisheries and manufacturing industries also possess huge potential.

President Isaias Afewerki is determined to transform Eritrea into the Horn of Africa’s logistics hub, as the country of 5.6 million people capitalizes on its 1,151-km long Red Sea coastline and access to one of the world’s busiest trade and shipping routes.

As the African nation’s preferred commodity partner, China is playing a key role in Eritrea’s socioeconomic development through the supply of aid, capital, machinery, technology, knowledge and skills.

Chinese enterprises and equipment are also widely involved in the rebuilding of vital infrastructure such as roads, airports, power and telecommunications, schools and hospitals.

“Our priority has been the creation of a good climate for investment and development,” said Afewerki, who took office in 1993 as head of the People’s Front for Democracy and Justice (PFDJ).

“Eritrea can be a gateway for investment in Africa if we can take advantage of our excellent strategic location. Our partnership with China, even though it is in its early stages, will dramatically change the reality in this country and give us a greater global interaction.”

According to the president, the mining, fisheries and agricultural sectors, especially cotton production, are best suited for Chinese investment as they will utilize the country’s natural resources and generate substantial exports revenues.

“The potential for cotton cultivation is huge and a key part of our agricultural program is the introduction of new technology,” he said.

“We are developing our agricultural infrastructure and, in partnership with China, are developing a textile industry. The initial commitment with China for cotton exports is already in place. We have begun with very modest programs but we need to expand them.”

Tightening bonds

Chinese Ambassador to Eritrea, Li Liansheng, has welcomed these and other positive developments as he looks to strengthen these political, commercial, industrial and social bonds.

“The Eritrean government is trying to invite Chinese companies to make Eritrea a trading and transportation center for Chinese goods,” he said. “There is particular potential and interest for Chinese companies in Eritrea’s strategic location at the gateway to the vital trade and shipping route on the Red Sea.”

A core pillar of Eritrea’s modern economic policy is the setting up of new free trade zones that will generate fiscal growth, create jobs, boost government revenue and raise the country’s profile on the global stage.

With a strategic location on international shipping lanes, Eritrea offers exporters and investors easy access to foreign markets, with up to 40,000 cargo ships a year – carrying some 700 million tons of cargo – passing close to its coast.

In order to capitalize on these commercial opportunities, Eritrea is building a series of modern free trade zones comprising factories, warehouses, offices, roads, airports and transport facilities. The first free trade zone will commence operations shortly at Massawa after the government invested millions of dollars in the transformation of 5,000 hectares of land next to a former naval base.

Chinese enterprises are among the foreign firms that will be based there and benefit from a tax-free environment in which no direct or indirect taxes are paid on sales or profits.

A second facility at Assab will open later this year and officials have plans for similar developments across the country, including one focused on agro-businesses near the border with Sudan.

The ‘multiplier’ effect

According to Eritrea Free Zones Authority CEO, Araia Tseggai, the free trade zones will stoke the economy through the “multiplier” effect of employment, training and education opportunities and act as a magnet for foreign investors.

“We feel they are a good place for Chinese companies to secure and buy resources from Eritrea, process them there and take them to China or use them for their own purposes anywhere in the world,” he said.

“Looking ahead to the imminent openings of the new free trade zones at Massawa and Assab, Tseggai emphasized the importance of Eritrea’s location in the Horn of Africa and revealed that while the Massawa facility will focus on manufacturing, the sister zone at Assab will be aimed at transshipment-related operations and services.

“Cargo ships are always passing and this element is crucial as most of the shipping firms will end up stopping here and picking up their produce to wherever they are going,” he said.

“Chinese enterprises always carry out relatively large projects so if the Chinese start up businesses and logistical operations here it will be very important for our current and future operations as they are significant investors.”

A leading figure in Eritrea’s import and export sector – and an organization that is sure to benefit from the presence of the free trade zones – is the government-owned Red Sea Trading Corporation.

Established in 1984 as a commodities trading business, the non-profit firm performs a wide range of operations. It handles commodities such as sugar, grain and oil and the bulk of its trade is with China, where it is looking for further business opportunities.

“Our priority has shifted to China – the more suppliers you get, the more chances you have to obtain different brands of commodities and products,” said Red Sea Trading Corporation general manager, Negash Afworki.”

As the government’s head of economic affairs, Hagos Ghebrehiwet is responsible for overseeing the development of many of Eritrea’s State-owned enterprises in a range of sectors. “We have to become independent and develop our resources,” he said. “We need investment and assistance that allows us to stand on our own two feet, as well as being mutually beneficial.”

Building connections

Meanwhile, helping firms connect to the world in today’s technology-dependent society is EriTel. The country’s sole telecommunications provider is State-owned and is committed to improving its infrastructure and network coverage with the help of Chinese equipment, technology and human resources.

“We have replaced the old analogue equipment across the country with new digital telecommunications technology and have installed solar energy systems in areas where there is no electricity so that the mobile systems work 24 hours a day,” EriTel general manager and CEO, Berhane Tesfaselassie said.

“The Chinese are helping our development in many areas and I really appreciate their contribution to Eritrea’s telecommunications sector and their cooperative and understanding attitude.”

Such technological improvements are a key component of the growth of the Housing and Commerce Bank of Eritrea.

Founded in 1994, the Asmara-based bank offers individual and business customers a wide range of financial products and services such as savings and deposit accounts, private and commercial loans, plus international money transfers.

“Even though 60-70 percent of our activities and transactions are still involved in real estate, we do provide all the normal services that a bank should offer,” said Housing and Commerce Bank of Eritrea General Manager, Berhane Hiwet Ghebre.

“We are trying to open new branches in remote areas so everybody can benefit from our banking services and we really care about corporate social responsibility.”

Source: China Daily

COMESA REGION

Victoria Falls (Zimbabwe) – The organization for a common market for Eastern and Southern Africa (COMESA), has launched a single customs union yesterday during the 13th summit of the Head of States 2009.

Eritrea is a member of COMESA and is therefore taking part in the new customs union. The aim of the union is to facilitate trade between member states in a common market.

The COMESA customs union comes along with Eritrea’s recent announcement to introduce Free Trade Zones at the port of Massawa and Assab. As a result, the prospects for trade being stimulated in Eritrea look promising, because Eritrea has lowered trade fences for intra African as well as for overseas goods and products. 

The member countries have created one region in respect to their standardized customs system. For example, the abolishment of customs fees for certain goods traded between the member states themselves or the charging of the same rate of customs duty on goods imported from outside their territories.

The President of Zimbabwe Robert Mugabe, who took over the Chairmanship of COMESA for one year, called out to potential investors; ” We have a regional market for you, come to COMESA!”.

The outgoing Chairman and President of Kenya, Mwai Kibaki, encouraged the member states to stay committed to the regional organization, which has developed from a Preferential Trade Area (PTA) to the Free Trade Area (FTA) leading to the launch of the COMESA customs union.

Further, he announced that intra COMESA trade has reached the $15 billion mark in 2008, from $3.2 billion in 2001 when the COMESA FTA was introduced. Out of Eritrea’s total exports in 2007 approximately 8% were made to the COMESA region and 2% of imports came from the COMESA region (see table on the right).

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.