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Tuesday 21 February 2006
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ERITREA: Coping with economic hardships

[ This report does not necessarily reflect the views of the United Nations]


The cereals market in Asmara.

ASMARA, 19 May 2005 (IRIN) - Meaza, a mother of two young children, works as a cleaner in the Eritrean capital, Asmara, and spends half her monthly salary of 400 Nacfa (US $26.60) on rent for her single room in Abashawl, a poor neighborhood in the downtown area of the city.

"My husband is in the military. He used to pay the rent, but now this has stopped as we are divorced," she told IRIN. "Usually we eat twice a day, mostly shiro [beans]. Sometimes when we are hungry we visit our relatives who are a bit better off."

Meaza, who would not give her full name, is no exception in a country that has been plagued by years of drought, a declining economy and an unresolved border dispute with Ethiopia.

The dispute, according to government sources, has forced Eritrea to put a lot of its scarce resources into military spending. Along with fuel shortages and rising prices of consumer goods, the already weak economy has declined.

"We are dealing with four years of consecutive drought," Yemane Gebremeskal, presidential advisor and chief government spokesman, told IRIN in an interview at his office. "This [drought] has eroded coping mechanisms and is putting severe pressure on the government. The overall security situation has also [had] an impact."

Critics argue that some of the economic policies the government is pursuing, such as increased market intervention, have harmed the economy even further.

Government officials, however, disagree.

Trucking scarce water in Omhajer town, southwestern Gash Barka, near the Ethiopian border.
"The macroeconomic policy document of 1994 is extremely liberal in terms of fiscal policy," Yemane said. "But if in certain circumstances the assumptions do not work and the market does not function, then you have to take corrective measures, then government normally intervenes."


On Friday 6 May evening, IRIN visited the once busy cereals market in Asmara. It was almost deserted.

"Everything is expensive. Many can only afford small quantities," a woman selling beans and lentils in tiny, recycled tomato-sauce tins said. Nearby, a group of young men were looking for customers who could afford to buy live chickens at 120 Nacfa ($8) each.

Woldai Futur, Eritrea's current minister for national development and a former World Bank employee, told IRIN that military spending was expected to consume about 17 percent of the 2005 national budget - a high figure compared with international standards, but still much lower than the 50 percent that was spent during the war in 2000.

Diplomats in Asmara say the conscription of men aged 18 to 45 into the military has also created a scarcity of skilled labour. It has also led to a situation where 40 percent of all households are headed by women, who have to bear the burden of raising families, tending fields and fetching water.

Farmers in the southwestern province of Gash-Barka, Eritrea's main bread basket, told IRIN they could produce much more if their sons who were in the army could help them with irrigation and dam-building during the rainy season.

The government argues that soldiers work in state-run and private farms during the agricultural season, making up for manpower that otherwise would have been lost.

"It is not an optimal situation," Woldai told IRIN. "But our defence forces are also engaged in development, building of infrastructure and housing."

Yemane said the military had constructed the water and drainage systems and houses in Asmara. "In a time of relative peace, 90 percent of the army works in the productive sectors," he explained. "We have never lived in a situation where the army is simply a fighting force."

The economic decline that Eritrea is experiencing has also affected people's health.

IDP camp in Senafe, Debub province.
According to the UN Children's Fund (UNICEF), about 40 percent of all pregnant and lactating women are malnourished. The last country-wide nutrition survey was made in June 2004, and experts say that in the meantime the situation has worsened.

"Global acute malnutrition among children below five stands at 15 to 20 percent and is set to remain high if support by donors does not increase," Christian Balslev-Olesen, UNICEF representative to Eritrea, told IRIN.

In 2003, donors met 77 percent of Eritrea's funding requirements - the third best response out of 25 countries covered by UN consolidated appeals. By the end of 2004, it had received 60 percent of the money it required.

Eritrea's 2005 appeal for $157 million has received a less generous response. According to the UN Office for the Coordination of Humanitarian Affairs (OCHA), only about 20 percent of the funding had been received thus far. This could affect efforts to provide aid for some 2.3 million people who need food, water and relief aid.

Delays in the arrival of food aid have already forced the Eritrean Relief and Refugee Commission (ERREC) to reduce the size of rations to about 60 percent and instead of the targeted 2.3 million beneficiaries, only 1.2 million were actually receiving food aid.

"We [are giving] carryover stocks from last year until the first shipments arrive, which we expect by June or July," Techlemichael Weldegiorgis, deputy head of ERREC, told IRIN.


It is, however, the continuing border stalemate with Ethiopia that has hurt the Eritrean economy and its people most, said diplomats in the country.

"The border conflict has hijacked everything in Eritrea," a western diplomat in Asmara told IRIN. "NGOs and donors have difficulty implementing their projects."

Many NGOs complain that assistance for Eritrea from donors critical of the government is more and more difficult to come by. "Development aid has tremendously diminished since 2000, when the government closed private media and arrested reformist politicians," one diplomat said.

Yemane rejected this argument. "I would hope that humanitarian assistance is not politicised," he told IRIN. "Eritrea is a sovereign nation with a sovereign right to determine the threat it faces and be prepared to spend what is necessary that it is not overwhelmed by it.

"What we need is a much more conducive regional environment. We need a situation of peace and security where we can focus fully on development," he added.

Yemane said Ethiopia's noncompliance with the 2002 border commission's ruling that returned Badme - a small border town in the southwestern province of Gash Barka over which the two neighbours fought a two-year war in 1998 - to Eritrea has hurt the economies of both countries.

Prior to the conflict, Eritrea and Ethiopia had enjoyed a booming cross-border trade, which began after Eritrea won its 30-year struggle for independence in 1991.

A peace agreement was signed by both sides in December 2000 in Algiers in which they agreed to accept the ruling of an international border commission on the disputed land. Two years after the ruling by the border commission was issued, however, the Ethiopian government rejected the ruling, saying the contested town of Badme was part of its territory.

"We may be feeling it more than they [Ethiopia] do, but it is to the disadvantage of both countries," Yemane said.

Blaming the international community for not putting enough pressure on the Ethiopian government to stick to the Algiers Agreement, he added: "Ethiopian presence north of the delineation line is a presence of occupation. There will be war unless this problem is resolved."

Woldai said that if the border dispute could be settled, the Eritrean economy would again reach the 7 percent growth rate it experienced from 1992 to 1997. Such gains would be a relief for ordinary Eritreans, given that the economy only grew by 2 percent in 2003 - a time when the population increased by 2.7 percent.


The government has undertaken various efforts to try and contain the economic downturn the country is going through, officials said.

An Eritrean mother with a malnourished child in Goluj, Gash Barka province.
It has fixed the exchange rate of the Eritrean Nacfa at 15 Nacfa per US dollar. The rate, however, is 5 Nacfa lower than what traders pay on the black market, which has prompted the government to crack down on illegal currency dealers. Those caught are punished with two-year jail terms and fined.

Yemane said the measures were intended to stabilise the currency market. "The policies are neither conservative nor liberal. They are standard policies pursued by all other countries in the region," he said.

In 2003, the government also introduced new rules for import-export licences, which reduced the number of traders. Sources in Asmara said the policy - together with a wide-ranging import ban imposed two months ago - has increased scarcity of essential items and driven up prices.

The new regulations, for example, forced traders to sell their stocks of Ethiopian teff, a popular cereal they had imported from Djibouti, to the Red Sea Corporation, one of several government companies that drive much of the Eritrean economy.

As a result, the price of teff rose rapidly from 1,600 Nacfa ($107) per 100 kg to about 1,900 Nacfa ($126). By April, Ethiopian teff cost up to 2,300 Nacfa ($153) per 100 kg in the Asmara market.

Woldai said the government imposed the restrictions on currency and trade in order to meet the basic needs of the population through centralised procurement.

"We have no ideological problem with the private sector - the measures are only temporary," he told IRIN. "They are meant to improve the lot of the population."

Yemane said: "There were some petty traders who were importing teff from Ethiopia. They were getting hard currency on the black market for exorbitant prices, and to make profit they sold the goods exorbitantly. This creates inflation. Secondly, it creates leakage of foreign currency."

Other sources, however, said trade restrictions and currency controls had led to shortages, including that of fuel.

Currently, taxis are allocated three litres of gasoline a day at the official price of 15 Nacfa ($1) a litre. One driver told IRIN: "If I need more, I buy it at the black market. There, a litre of gasoline costs 40 Nacfa [$2.60]."

A representative of a western aid agency told IRIN that metal roofing material used for building shelters for displaced people was scarce, and the supply of steel bars and cement was intermittent. He estimated that the construction price for housing units had almost tripled since 2001.

Junk from the independence war piled up in Asmara.
According to sources in Asmara, imports were now subjected to government approval based on what kind of goods are essential to the survival of the country and what goods are considered unnecessary luxury.

"Packed milk is sold under the counter," the wife of an expatriate worker told IRIN. "When I wanted to buy a whole salami, the salesman refused, saying he had nothing left for other customers. Regularly young men approach me offering to queue up at state-run bread and meat outlets."

Recently, the government announced plans to open more than 50 state-owned shops in Asmara, in order to supply the population with essential items.

In one measure to alleviate the plight of the urban poor, the government provides subsidised wheat flour to bakeries, to keep bread prices low. However, people have to line up early in the morning if they want to benefit from limited stocks, which are rationed.

Civil servants complain that while most prices had gone up, salaries for government employees had remained the same since 1996. A retired former director of the health ministry told IRIN: "My pension is 450 Nacfa ($30) a month."

Like many Eritreans, he has children abroad who regularly send money to him. Woldai estimated that $100 million to $140 million would be remitted this year to Eritrea by people living in the diaspora.

Yemane remained optimistic that the situation would improve. "This is a country that can take off quite easily whether it is tourism, the service or mining sector, even agriculture," he told IRIN. "The people in this country also have the resilience and dedication to overcome difficulties."

 Theme(s) Economy
Other recent ERITREA reports:

Disputed border still tense, says UNMEE,  2/Feb/06

Eritrea criticises US over "bias" towards Ethiopia,  30/Jan/06

IDPs prepare to return to their villages,  26/Jan/06

US mediation team arrives in Addis Ababa,  19/Jan/06

Year in Review 2005 - Unresolved border tensions,  11/Jan/06

Other recent Economy reports:

SENEGAL: On the lookout for bird flu in world’s third biggest reserve, 21/Feb/06

PAKISTAN: USAID voucher programme makes difference in quake-affected north, 20/Feb/06

IRAQ: Loss of oil revenue hampers reconstruction efforts, 19/Feb/06

NIGERIA: Militants seize 9 foreigners in new attack, cause cut in oil exports, 19/Feb/06

ZAMBIA: Lack of funds hampers bird flu surveilliance, 17/Feb/06

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