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3. Legal Regime

Transparency of the Regulatory System

The GSE is not transparent.  The World Bank scores Eritrea a zero on its six-point scale for the “Global Indicators of Regulatory Governance.”  Legal and regulatory systems are not transparent.  Ministries are empowered to (and do) issue new regulations with no public debate.  There is no publicly accessible location (online or otherwise) to find key proclamations, laws, or regulatory actions.  There is no public oversight of government actions nor legal recourse against government actions taken.

The seeming arbitrariness of government regulation and action is a drag on the economy.  Businesses are shuttered on occasion without explanation, leaving other businesses to wonder (and often spread rumors) as to what happened.

Public finances and debt obligations are not made public.

International Regulatory Considerations

Eritrea is a founding member of the Common Market for Eastern and Southern Africa (COMESA).  It also belongs to the Community of Sahel-Saharan States and the Intergovernmental Authority on Development (though it has not participated in the latter for several years.)  COMESA decisions are binding on all member states, but as they are made by consensus this does not cause conflict.

Eritrea is one of only 10 UN member states that has no affiliation with the WTO.

Legal System and Judicial Independence

The Eritrean legal system is based on the Ethiopian system that was in place at the time of independence.  It is primarily a civil law system, though these laws are deeply influenced by traditional law.

Eritrea has a written commercial code, derived from the Ethiopian commercial code in effect at the time of independence along with several proclamations to update the code.  A full rewrite was done as part of a 2015 overhaul of the major legal codes, but these were never implemented.  Any international company doing business in Eritrea will need the assistance of a local attorney versed in the complexities of the Eritrean legal system.

The judicial system is not fully independent of the executive.  Judges are National Service employees, and thus work for the executive branch.  Many enforcement decisions, and especially those that relate to the commercial or labor codes, are adjudicated solely through the national court system and are appealable.

Laws and Regulations on Foreign Direct Investment

Eritrea’s legal system plays only a minor role in foreign direct investment. All large-scale foreign direct investment is part of a political process and is managed by non-public agreements negotiated directly with a small group of officials in the government and the ruling party.

Eritrea does not have a  website for foreign investors to learn about relevant laws, rules, procedures and reporting requirements.

There have been no new major laws, regulations, or judicial decisions announced in the past year.

Competition and Anti-Trust Laws

There are no indications that the GSE makes any effort to promote market competition. All large-scale economic activity is controlled directly by the GSE or by jointly controlled international companies operating under agreements negotiated directly with the GSE/PFDJ.

Expropriation and Compensation

There is no transparent process that would allow an individual or company to appeal any GSE expropriation of property.

The most recent public case of expropriation was in 2019, when the government expropriated 22 health clinics from the Catholic Church, citing a law prohibiting religious organizations from providing social services.  The Catholic Church said there was no due process or ability to appeal the decision.

Dispute Settlement

ICSID Convention and New York Convention

Eritrea is not a member of the International Centre for Settlement of Investment Disputes (ICSID) Convention or the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

Eritrea is not a signatory to a treaty or investment agreement in which binding international arbitration is recognized. Eritrea has no BIT with an investment chapter with the United States.

Due to a lack of government transparency it is impossible to determine the number of investment disputes involving U.S. persons or foreign investors. Because of the minimal level of foreign investment, the number of disputes is presumably also very small.

Local Eritrean courts do not recognize or enforce foreign arbitral awards issued against the GSE.  There is no known history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Some disputes between private parties are settled in traditional village courts. There is no independent, domestic arbitration body in Eritrea.

The local courts do not recognize or enforce foreign arbitral awards, nor do they recognize or enforce judgements of foreign courts.

There are no known investment disputes involving SOEs.

Bankruptcy Regulations

Bankruptcy is addressed in the Eritrean Civil Law and the proclamations amending it; however due to lack of transparency in the court system, it is impossible to determine what rights, if any, creditors, shareholders and holders of other financial contracts have in practice.  No information is available on how bankruptcy is handled in practice.

Investment Climate Statements
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The Lessons of 1989: Freedom and Our Future