The investment climate in Eritrea is not conducive to U.S. investment.
While there are opportunities, especially in the extractive industries sector, the Government of the State of Eritrea (GSE) maintains a command economy, with government activities predominating over private enterprise. Unreliable power, complicated and changing import regulations, limited air and ground transportation links, insufficient port facilities, lack of fuel, unrealistic exchange rates, restrictions on repatriation of profits, the near impossibility of getting a construction permit unless the project is government-sanctioned, and in-country travel restrictions all work to undermine trade and investment. In addition, the potential U.S. investor must be aware of the international sanctions regime placed on Eritrea. As a result, there is very little U.S. direct investment. There is no American Chamber of Commerce and few American companies are working in Eritrea.
According to its Five Year Indicative Development Plan 2014-2018, the GSE states that it wants to encourage Foreign Direct Investment, but its policies belie those pronouncements. The GSE began encouraging some types of international investment in 2012, and some reforms were introduced in 2013, ending, as a matter of doctrine, years of adherence to self-imposed isolation and strict self-reliance. However, at the end of 2015, the government recalled all old currency and issued new currency, creating a severe problem in liquidity as there was a severely restricted and insufficient supply of money. The unofficial exchange rate rose from 55 Nakfa/$1 to near parity with the official rate of 15 Nakfa to $1. A series of broader reforms that would ease restrictions on business licensing and imports, described as ready for enactment several times as far back as 2013, have never been approved by the President. Recently, more flights in and out of Asmara have been added to replace Lufthansa flights that terminated in 2013. Eritrea achieved Millennium Development Goals related to public health in the course of 2014, and is making progress toward other MDGs.
Eritrea’s labor pool is well qualified compared with those in neighboring states. Eritreans start English classes in elementary school and are educated almost exclusively in English from grade six onwards. The people are generally resourceful and industrious. Historically, corruption in Eritrea appears less pervasive that in other countries in the region, but there are signs that corruption is on the rise, particularly in the areas of smuggling and immigration. The country’s mandatory national service program and possibility of the GSE to place persons performing national service in some commercial enterprises, may leave businesses open to charges of relying on conscripts as a labor force.
Investment opportunities in Eritrea are most promising in the mining, minerals, energy and agricultural sectors. Foreign activity in financial services, domestic wholesale trade, domestic retail trade, and commission agencies is prohibited. The GSE prefers to obtain a controlling interest in any large ventures.
The country performs poorly with regard to public finance management. It has never published a national budget. Economic indicators are based on conjecture and incomplete information.