Eritreans who love their country, care for their people and wish to see the Eritrean people live in freedom, justice and prosperity must strive to help bring about political and economic change that, among other things, advances economic development through the promotion of domestic and foreign investment. This commentary explores the range of opportunities, constraints, risks and prospects for investment that can help bring about socioeconomic development and uplift the human condition in Eritrea. The commentary has three main purposes.  

First, to serve as a basis for informed, evidence based and rational dialogue to stimulate earnest national conversation among patriotic Eritreans concerned about the present situation and the prospects of Eritrea. 

Second, to highlight the essential policy initiatives and practical measures required to bring about democratic change that, among other things, encourages domestic investment and attracts foreign direct investment in Eritrea. 

Third, to argue that, despite the many internal and external challenges, constraints and risks, the existence of ample opportunities in multiple sectors and the prospect of policy changes operate to weaken the apparent disadvantages, strengthen the probable advantages and make prospective investment in Eritrea feasible. 

There exists a causal relationship between the extent of investment in a country, the growth of its economy, the prosperity of its people and the state of its human condition at any given moment in time. The economic history of nations attests to the vital importance of domestic, foreign direct and institutional investment for economic growth and sustainable development. Investment increases the stock of capital and the amount of available capital, in turn, determines productivity. Besides, increasing domestic and foreign investment creates jobs and wealth, enlarges national income and augments the stock of goods and services available for domestic consumption and/or export of surplus commodities. This is why most countries endeavour to pursue policies and create conditions designed to encourage domestic investment, attract foreign direct investment (FDI) and secure foreign markets. 

Eritrea is one of very few countries in Africa that had a relatively developed physical infrastructure and a modern industrial sector built during the period of Italian colonial rule, pillaged during the period of British military administration, regressed during the period of the federation with Ethiopia, and nationalised during the rule of the Dergue. Following independence, the Transitional Government of Eritrea, instead of revitalising the state-owned enterprises and factories through innovation, modernisation or viable privatisation, let them decay by adapting wrong policies. It condemned most of them to an irreversible decline through a nominal privatisation that lacked rational criteria to ensure sustainability. For instance, it made the Asmara Bottling Factory (Inda Merengi) stop production claiming that it will be replaced by a new factory that never saw the light of day. 

Furthermore, the president of Eritrea has, for over three decades, made recurrent promises of undertaking and investing in developing Eritrea’s physical infrastructure “sector by sector” and rebuilding Eritrea’s ports. He has, over the years, made repeated declarations of grand plans of largescale development projects and overseen the occasional convening of investment conferences in Asmera. The promises have, however, delivered neither substantial investment nor real development as manifest in the country’s poor and deficient state of water, energy, transport, communications, and Internet services. Except for the lucrative mining sector whose revenues remain unaccounted for, Eritrea’s backward economy has reeled under constant stagnation while its ruined ports have virtually become ghost towns. 

Notwithstanding his repeated rhetoric, President Isaias Afwerki has imposed and presided over a dysfunctional command ‘coupon economy’ that, under his watch, has worsened the economic backwardness of the country, produced the general impoverishment of the people, and pushed out Eritrea’s entrepreneurial class to greener pastures in the neighbourhood and beyond. His pretentious forays to court Italian investment have, to date, succeeded in attracting only a single investor, the ZaEr Plc. (Zanbaiti-Eritrea) textile company. Would it be possible to reverse this dismal failure and anticipate improvement soon? 

There have recently been some hopeful signs of movement in this direction. For instance, the first half of 2024 has witnessed a series of diplomatic activities involving high-level delegations between Eritrea and Italy. First, President Isaias’s attendance of the Italy-Africa Summit in Rome in January 2024 and subsequent high-level meetings with senior Italian officials and businesspeople. Second, the visit of senior Italian Ministry of Foreign Affairs officials and businesspeople to Eritrea in March 2024. Third, the latest visit in June 2024 of an Italian ministerial delegation and businesspeople to Eritrea. Discussions centred on the need for Italian private and public sector investment to help develop Eritrea’s ports and physical infrastructure, notably in the manufacturing, road and rail transportation, energy, water, agriculture, fisheries and health sectors within the framework of the Mattei Plan. 

Convened ahead of Italy’s assumption of the Presidency of the G7 and the 37^th Ordinary Assembly of the African Union, the Summit announced a new Italian partnership with Africa with an allocation of € 5.5 billion to Africa’s development. In the context of this new economic partnership, there exist strong historical, cultural and economic factors that can help promote significant mutually beneficial Italian investment in Eritrea. As the saying goes, however, “it takes two to tango”. Clearly, the ball is in Eritrea’s court.

There are three key questions that arise in this regard. First, can President Isaias Afwerki, today in the twilight years of his rule, transcend his malevolent record of the past thirty-three years? Second, does he have a genuine desire or will to facilitate national development by creating a conducive climate that enables Eritrea to partake in and benefit from Italy’s new flagship initiative for Africa? Third, would he allow the relevant government authorities to follow up and implement the partnership in a manner that really benefits Eritrea? 

In a nutshell, the establishment of the rule of law and creation of a conducive legal environment are essential to encourage domestic investment and attract foreign direct investment in the relatively less lucrative non-extractive sectors. Significant sustainable investment requires the introduction of political and economic reforms that provide a legal framework that ensures the application of the rule of law in the governance of economic, financial and commercial operations, both within Eritrea and between Eritrea and the outside world. The establishment of a legal framework and issuance of a prudent investment code would create investor confidence and attract the flow of viable domestic investment and sustainable foreign direct and institutional investment in Eritrea. 

Eritrea is a small country with a small and declining population base, a small labour force and a small internal market situated in a volatile region riven with multiple conflicts. The country’s dilapidated physical infrastructure; chronic shortages of water and electricity; poor transport, communications and health services; scanty office space; acute shortage of housing; restrictions on free movement; limited Internet access; tight control of local SIM cards; and lack of mobile phone roaming service aggravate the comparative disadvantages. These deficiencies discourage domestic investment and represent liabilities in terms of attracting foreign direct investment. Offsetting these liabilities, Eritrea possesses significant assets in its industrious people, a strategic maritime location and ample mineral, agricultural, livestock, marine and renewable energy resources. 

Eritrea’s location at the crossroads of the Horn of Africa and the Middle East astride one of the world’s busiest commercial and naval shipping lanes bestows considerable geostrategic, geoeconomic and commercial importance on Eritrea. Moreover, its long coastline; beautiful sandy beaches; hundreds of islands and islets; azure, blue pristine waters; varied and picturesque topography; and historical sites, both ancient and modern, represent great attraction for profitable investment in ecotourism. These factors are major assets that enhance Eritrea’s comparative advantage as an investment destination. 

The extractive industry is the sole sector attracting substantial foreign direct investment in Eritrea today. This is not surprising given the sector’s very high profitability and the country’s extensive deposits of various minerals. Australian, Canadian and Chinese companies, in partnership with the state-owned Eritrean National Mining Corporation (ENAMCO), are actively engaged in the mining of and prospecting for, among other things, gold, copper, silver, zinc, uranium, and potash. According to the African Development Bank, extraction of oil, natural gas, cement, gypsum, granite, marble, ceramics, limestone, and iron ore represents diverse opportunities for lucrative investment in Eritrea.  

Agriculture and fisheries offer another area of considerable opportunities for profitable domestic and foreign investment. Prospective areas include the production, processing and distribution of a variety of cereal crops, citrus fruits, vegetables, livestock and fish, both for local consumption and export. Studies indicate that Eritrea’s richly endowed continental shelf, territorial waters and exclusive economic zone can sustainably yield over 90,000 tonnes more fish per year than the country’s current total annual catch.  

Ironic though it seems, liabilities may occasionally turn into potential assets. Rebuilding and modernising Eritrea’s rundown physical infrastructure and undeveloped economy represent yet untapped potential for lucrative investment in construction, agriculture, industry and services. In particular, the malevolent ban on residential and industrial construction for nearly two decades in the face of an acute shortage of housing has built a huge pent-up demand. Investment in construction designed to meet the enormous demand for housing represents a great opportunity for highly lucrative foreign direct investment. The colonial era legacy of modernist avant-garde style architecture and aging Art Deco (Arts décoratifs) buildings adorning Eritrea’s decaying cities and Italianate structures warrants especially Italian investment that could generate considerable profits. 

There also exist considerable opportunities for investment in the depressed energy sector. Eritrea is endowed with abundant sources of renewable energy. It has plenty of sun, wind and hot geysers that can be harnessed to produce a steady supply of clean solar, wind and geothermal energy at relatively low cost. The maiden status of renewable energy and its crucial importance to the national economy, particularly to the development of industry and services, reforestation, and the restoration and maintenance of the integrity of the environment would generate high and rapid return on investment. 

The services sector is the lifeline of a national economy and assumes an increasingly larger proportion of employment and output relative to agriculture and industry as a country climbs up the development ladder. It thus presents ample opportunities for investment with high and rapid return. Moreover, a developing Eritrea requires an efficient and viable system of land, air and sea transport; communications; broadband Internet connectivity; and roaming cellphone service. Given that many Eritreans are forced to seek treatment outside the country even for easily curable common diseases, there is great demand for the revitalisation of the degraded health care and education systems. Eritrea’s aspiration and potential to become a services centre, including financial services, demands investment to modernise the substandard state of commercial and development banking and introduce credit card facilities. 

Regional peace, security and stability are necessary for the sustainable development of the countries in the Horn of Africa and the coprosperity of their peoples. Used as a common resource via win-win bilateral agreements, Eritrea’s strategic maritime location and accessible ports represent a significant geopolitical and geoeconomic asset. The establishment of peaceful cooperative relations among the states in the region could extend Eritrea’s small domestic market into the relatively larger markets of Ethiopia, Sudan and South Sudan to reciprocal benefit. With modernised physical infrastructure, transport services and renovation, Eritrea’s ports can serve as regional ports for Ethiopia, South Sudan and the adjacent regions of eastern and southern Sudan for which Massawa is nearer than Port Sudan. 

Beyond the Horn of Africa, membership in the Common Market for Eastern and Southern Africa (COMESA) allows the free movement of capital, labour, raw materials, goods and services within and across the common market area. This bears the potential to transform Eritrea’s domestic market into an integral part of a much larger regional market. Moreover, Eritrea’s ratification of the instruments of the African Continental Free Trade Area (AfCFTA) agreement would make its domestic market part of a huge seamless All-Africa continental market. Being a beneficiary of the world’s would-be largest free trade area would render investment in Eritrea highly attractive. 

Furthermore, exports of Eritrean goods and services can, upon signing the Post-Cotonou Agreement between the European Union (EU) and the Organisation of the African, Caribbean and Pacific States (OACPS) and fulfilling the requirements of the partnership, have preferential duty free and quota free access to the EU market. These possibilities constitute significant assets that can more than compensate for the liabilities of a small population, labour force and domestic market. 

In connecting Eritrea’s strategic assets with southwest Asia and the Mediterranean Sea littoral regions of Europe and Asia, the Red Sea augments the country’s commercial opportunities in Africa. It facilitates Eritrea’s active and beneficial participation in international trade and regional commerce. Moreover, it avails Eritrea the prospect to serve as a gateway for investments in Africa, to transform some of its coastal areas into Export Processing Zones and to become a vibrant regional hub of industry, trade and services.   

To capitalise on its considerable comparative advantage and build on its abundant natural resources and the commendable work ethic of its enterprising people, the government of Eritrea needs to establish the rule of law and put in place a legal framework; open the political and economic space; abandon the crippling command coupon economy; and end restrictions on the free movement of people and commodities within and across the country. These essential measures would unleash the creative potential of the Eritrean people to utilise their natural endowments and generate development, wealth and prosperity. 

The application of the Constitution of Eritrea would be the first indispensable step towards the establishment of the rule of law in the country. This should be accompanied by the formulation of a regulatory framework that provides for the prudent economic governance and healthy functioning of the financial and commercial sectors. The establishment of the rule of law and the institution of a prudent regulatory framework would banish the capricious rule of man; mitigate uncertainty and foster predictability in doing business; ensure the enforceability of contracts and agreements; and create conditions that encourage domestic investment and attract foreign direct and institutional investment in Eritrea. 

The health and proper functioning of the financial sector, just like that of the state, require adherence to the rule of law. To play its crucial role in the development of the national economy, the Bank of Eritrea must be revitalised as an autonomous central bank with a statutory mandate to manage the country’s foreign exchange and gold reserves, monetary policy and trade finance; supervise the financial sector; and partake in fiscal policy in line with its remit to maintain overall macroeconomic stability. The exercise of the bank’s functional autonomy would end government control of foreign trade and foreign currency operations and sanction repatriation of profits in hard currency given a non-convertible local currency, the Nakfa (ERN), hitherto major impediments to investment in Eritrea.

Moreover, the bank can devise and manage a prudent and equitable foreign exchange regime that reflects the real value of the Nakfa, corrects its present overvaluation, promotes the external competitiveness of Eritrea’s exports, attracts investment and, in view of the crucial importance of remittances to the national economy and the sustenance of a great many Eritrean families, protects the interests of remitters and beneficiaries alike. 

Opening the political, economic and civil space, abandoning the crippling coupon economy and reducing the Front’s domination of the country’s economic landscape would stimulate economic growth that can increase the government’s tax base; reduce public debt denominated in Nakfa incurred to bridge recurrent financing gaps; and relieve the strains on Eritrea’s public finances kept in the dark in the absence of published annual budgets. Economic growth would also promote exports and import substitution, reverse the relatively high levels of current account deficit in the country’s balance of payments and enhance Eritrea’s foreign exchange reserves. In addition, publishing national income accounts as well as economic, financial, monetary and trade statistics; allowing the free movement of people, commodities and services within and across the country; doing away with restrictions to SIM card access; and introducing roaming mobile phone service would relax significant systemic constraints to domestic, foreign direct and institutional investment in Eritrea.   

Political and economic reforms that foster freedom, justice and development; create gainful employment; and generate wealth would make Eritrea liveable for its people, possibly stem and probably reverse irregular migration. Implementing national service in accordance with the provisions of its Proclamation would also stem mass exodus of Eritrean youth and may encourage many to return. Revitalising the education system would produce a literate and erudite population able to learn employable technical and vocational skills and apply new technology. These measures would create conditions that enable Eritreans to work, earn a decent living and lead a normal life in their own country. This, in turn, would help grow the population, the workforce and domestic demand for goods and services.

The domestic and systemic hurdles to investment are compounded by external constraints. The imposition of unjust unilateral US and EU sanctions disconnects Eritrea from the international financial system and payments mechanism for private transactions; restricts international financial transactions and borrowing to foreign corporations investing in Eritrea; and limits the country’s access to overseas development assistance. Moreover, the negative international image of the country, mainly due to the political and economic praxis of the government, exerts a powerful adverse impact on investment. This is manifest in Eritrea’s global ranking at the lowest rungs of the development ladder; in the indexes of economic freedom, business climate, risk assessment, ease of doing business, corruption perception, etc. Its place among the lowest ranks makes the business climate difficult and doing business unpredictable. This status positions Eritrea among the world’s most problematic and riskiest countries for investment. 

Overall, lack of a predictable legal framework; dilapidated physical and social infrastructure; central control of domestic and foreign trade, foreign currency operations and repatriation of profits; and financial sanctions create a difficult business climate. A small and unpredictable labour and commodities market; large irregular migration per capita; and the dearth of skilled manpower and competent managerial personnel due to the regime’s trivialisation of education and the closure of the only university in the country constrain proficient business activity. The government’s track record to date shows a difficult business climate that hinders investment in Eritrea. A volatile conflict matrix with shifting alignment of internal, regional and global forces adversely impacts peace, security and stability in the strategic region, including maritime security in the Red Sea, and compounds the risk posed by the above stated factors. These constraints discourage both domestic and foreign investment in Eritrea.   

Despite the challenges posed by these constraints, Eritrea's strategic location, its industrious and enterprising people, untapped economic potential and extensive marine and mineral resources offer substantial opportunities for lucrative domestic, foreign direct and institutional investment. Regimes come and go but the people and the state stay. Arguably, the current regime is in its twilight years and change seems to be in the air. 

On balance, the advantages of an investment project with a prudent business plan, technology transfer and skills training, and reliable domestic, regional and/or international market for the final product or service would outweigh the disadvantages. Prospective change and political and economic reforms would position early investors in a favourable situation and lend their investment a head start that could neutralise or diminish the potential risk. Bearing in mind that any investment venture carries elements of uncertainty anyway and taking a long-term perspective, it would be advisable to bet on the advent of prospective political and economic reforms sooner than later and invest in Eritrea at risk.  

On an optimistic note, it would be plausible to claim with a high degree of confidence that a democratic Eritrea whose people live in freedom, justice and prosperity can produce many world class stars of the likes of Biniam Girmay, Alexander Isaac, Henok Mulubrhan and the several other rising stars who excel in various fields of human endeavour on the world stage, and make their people, country and fans proud.