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

The UAE is seeking to expand its trade and investments with Africa, especially in the west and centre of the continent where it has no significant presence.

Giving a keynote speech at the second conference on Africa and the Indian Ocean, organised by NYU Abu Dhabi Institute, Sheikha Lubna Al Qasimi, the Minister of Foreign Trade, said the Emirates already had some investments in east, south and north African countries and was planning to expand its reach. She said the African continent’s population was estimated to rise to 2 billion within the next 20 years.

Sheikha Lubna said the UAE would seek to collaborate with Africa on tourism, infrastructure, oil, gas, mining, energy, transport, logistics, ports services and the IT and mobile phones sector, noting that “Africa has one of the fastest-growing number of mobile phone users in the world”.

However, she cautioned that Africa would need to increase the quality of its goods and services for trade relations to be mutually beneficial.

“Product competitiveness will be very important,” she said. “So African products will need to be able to compete with other products from elsewhere.”

A high-level delegation from the UAE visited nine African countries last year to explore further investment opportunities with the continent.

According to the WAM news agency, the government is looking to invest in the energy, agriculture, food and infrastructure sectors in Zambia, Lesotho, Zimbabwe, Mozambique, Malawi and Tanzania.

A number of UAE companies have made significant investment inroads in the continent. DP World runs the port of Dakar in Senegal and own ports in Mozambique, Algeria and Djibouti.

Dubai Investment Group owns 35 per cent of Tunisia’s Tunisie Telecom. Istithmar has invested in aviation in the Horn of Africa and hotels and other facilities in Rwanda, Tanzania and other places.

Etisalat owns 82 per cent of Sudan’s Canar Telecom, a 51 per cent stake in Tanzania’s Zanzibar Telecom (Zantel) and 50 per cent of West Africa’s Atlantique Telecom operating in Benin, Burkina Faso, Togo, Niger, Central African Republic, Gabon and Ivory Coast.

The conference is seeking to promote better trade relations between the Emirates, Africa and the Indian Ocean nations.

The conference also highlights and examines the major aspects of relationships among different Indian Ocean nations, other African nations and Gulf countries. Source:( The National)

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

Chinese Airline

Chinese carrier Hainan Airlines plans to launch a service to the capital of Sudan, a close political ally of China’s and a major oil producing nation, according to Air Transport Intelligence.

The Civil Aviation Administration of China says in a statement Hainan Airlines has applied for traffic rights to launch a thrice-weekly service from Beijing to Sudan’s capital Khartoum. The twice-weekly service starts 20 November and uses an Airbus A340, says an airline spokesman.

China is investing heavily in Sudan’s oil industry and has close ties to the government there. China’s foreign direct investment to Sudan was in 2005 worth over $300 million (Uncat).  The Washington Post reports that Trade between China and Africa jumped 45 percent, to $107 billion, in 2008, a tenfold increase since 2000, and that the new loans offered during the 4th China-Africa summit in Egypt are likely to sustain the expansion.

Economic development and financial ties also generate movement of people, goods and services between two points of gravity. Air transport correlates perfectly with trade activities and often fuels the pace of development between two trading regions.

The fact that a Chinese airline is opening air services to an African country shows that these trade relations must be quite advanced and a very serious matter to China. Hainan Airlines will have a monopoly on the connection Bejing to Khartoum as no other airlines operate on the route.

EU

Eritrea is involved in ongoing negotiations to enter the Economic Partnership Agreement (EPA) with the European Union. The comprehensive trade partnership would cover issues like services, investment, agriculture, technical standards, trade facilitation and trade related rules.

The overall aim of EPA) is to establish an Economic Partnership agreement between the EU region and the Eastern and Southern Africa regional grouping (ESA).

The first four ESA member countries Mauritius, Seychelles, Zimbabwe and Madagascar have already signed an EPA interim treaty last week. Under the deal these countries will have immediate and full access to EU markets (with transition periods for rice and sugar), together with improved rules of origin.

ESA countries are expected to open their markets gradually over the next 15 years, with a number of important exceptions reflecting their development needs. The East African countries (Djibouti, Ethiopia and Sudan), as well as Malawi are also involved in ongoing negotiations for the more comprehensive regional agreement and are expected to join the agreement at a later stage.

Eritrea has already duty free access to the EU under the European Union “Everything But Arms” (EBA) trade arrangement for least developed countries. Therefore, Eritrea does not need to submit a market access offer to sign the agreement and benefit from its development cooperation and fisheries provisions while negotiations to join the more comprehensive deal at a later stage continue.

Mandatory issues such as protection for local growing industries and export duties are on ongoing discussions amongst the Southern African regional groups and the EU to be agreed upon without postponement. It could be a window opportunity for Eritrea to engage in a business deal without the need to open to international markets. Eritrea needs to be flexible in opening up its market at a later stage.

Nevertheless, this requires the recognition of a strong market economy in areas where it can be competent at a global level. Perhaps it could possibly compete in the mining sector and sea-food markets. However, it might need a careful assessment in the agreement in order to avoid unpleasant surprises afterwards.

13th COMESA Summit 2009

Lusaka (Zambia) – The organisation for a common market for Eastern and Southern Africa COMESA, is going to hold the 13th summit of the Head of States 2009 from the 7th to the 8th of June in Victoria Falls, Zimbabwe.

COMESA was established in the 1960s in order to enhance regional economic co-operation between the participating member countries.

Member states are Burundi, Comoros, D.R Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Uganda, Seychelles, Sudan, Swaziland, Rwanda, Zambia and Zimbabwe.

The slogan used by the organisation is; “400 million Africans UNITED in ONE market”.

COMESA is expected to announce the launch of a customs union between all member states during the coming summit. Eritrea and the Democratic Republic of Congo have each been chosen to present a COMESA project, which is serving as a testimonial during the summit for the planned customs union .

Eritrea is presenting the EU funded COMESA project ASYCUDA, which is an undertaking in cooperation with the Eritrean Customs Department.

ASYCUDA was launched in five African countries in 2006 with a budget of 3 Million Euros. One of the goals of ASYCUDA is to improve the exchange of transit data between borders through web services. 

According to Mr. Haile, the Eritrean Director General of the Customs Department in Eritrea, the project is aiming to modernize the administrative and operational infrastructure of Eritrea’s customs administration, in order to keep up with the global development of computerized systems.

The project was launched three years ago, aiming to computerize the whole Eritrean customs operation in order to enhance statistical processing, accounts management , declaration processing, goods release and report generation.

In 2007 the first implementation of ASYCUDA was finalized at Asmara Airport. In the following year 2008 Asmara Railway customs station, the port of Massawa and the port of Assab customs stations received their ASYCUDA upgrade.

Mr. Haile states, that the initial project scope did not include the post station and the airport passenger terminal in Asmara. However, the system modernization was also implemented at these facilities. Future plans aim to extend the project to Tesseney customs station on the border to Sudan.

The planned COMESA customs union is intended to facilitate trade between the member countries and reduce bureaucratic barriers in order to improve productivity.

Chinese News Agency Xinhua reports that Chinese Ambassador to Eritrea Shu Zhan is expecting trade and cultural relations with Eritrea to be strengthened further.

Shu points out that China has already aided a hospital, two schools and one  human and social science institute to Eritrea and that trade volumes of China with Eritrea have reached $31 Million in 2008, which was a 7.6% increase compared to 2007.

The statements of the Ambassador follow previous steps taken by China and African countries to improve bilateral trade relations. For example, in August 2008 the China Development Bank signed a credit agreement worth $50 Million with PTA Bank, which stands for Eastern and Southern African Development Bank.

The shareholders of the PTA Bank  are Eritrea, Burundi, Comoros, Rwanda, Seychelles, Somalia, Ethiopia, Egypt, Djibouti, Kenya, Tanzania, Seychelles,  Somalia, Sudan, Uganda, Zambia, Zimbabwe.

The credit was supposed to support industrial sectors, which require heavy investment such as mining, telecommunication and infrastructure and was a result of the Bejing Summit  of the Forum on China-Africa Cooperation in 2006.

China is also involved in the gold mining projects in Eritrea with companies such as Donia Resources & Co (capitaleritrea).