Eritrea’s gross domestic product growth (GDP) growth was estimated at around 9% in the 2011-12 period (the latest point for which data is readily available), up from an estimated 2.2% in 2010. The growth was mainly stimulated by the mining sector (gold), the coming on stream of the Bisha mine in 2011 and the historically high gold price prevailing at that time were key drivers. Growth prospects are potentially favorable in the medium term, reflecting the potential of additional mineral resources, especially copper and zinc, with favorable international base metal prices.
Despite recent growth, Eritrea remains one of the least developed countries in the world. Anecdotal evidence indicates that poverty is still widespread in the country where 65% of the population lives in rural areas and 80% depend on subsistence agriculture for their livelihoods, impacting negatively on human development, which is evident in human-development statistics. In 2012, Eritrea’s Human Development Index at 0.351, was below the average of 0.466 for countries in the Low Human Development group and below the 0.475 average for countries in the Sub-Saharan Africa region.
Rain-fed agriculture is the predominant economic activity employing more than two thirds of the population. The sector’s contribution to GDP, however, has been moderate and declining, reflecting challenges that include recurrent droughts in the Horn of Africa, and rudimentary farming methods. However, the government’s decision to utilize $17 million of the African Development Bank’s (AfDB) Drought Resilience and Sustainable Livelihood Programme (DRLSP) 2015-2021 provides a good opportunity to mitigate the effects of recurrent droughts, and also enable the majority of the Eritreans, especially the youth, to participate in generating broad based growth.
Although falling from 33% in 2009, inflation was estimated to remain in double digits averaging 13% during the 2010-12 period due to monetization of chronic fiscal deficits. The government reported that less reliance on expansive monetary policy, thanks to the mining project bearing its fruits, contributed to single digit inflation in recent years. The current account balance turned from large deficits into surplus in 2011 though the trade balance is still negative but narrowing and is expected to reach less than 4% of GDP in 2012. Eritrea has suffered from chronic fiscal deficits since regional insecurity heightened in 1998, with an average deficit of 12.6 % of GDP in the 2010-12 period (including grants). Primary deficits have averaged 8.5 % of GDP in the same period. This has led to a highly unsustainable public debt burden, most recently estimated at 115 % of GDP in 2012.
By virtue of its location in the Sahel, Eritrea suffers periodic droughts and chronic food shortages hampering development efforts. Even in times of good rainfall, domestic food production is estimated to meet 60-70% of the population’s needs. The last household survey and Participatory Poverty Assessment undertaken in 2003 estimated around two-thirds of the people were living below the poverty line. The current applicability of the estimate is questionable since 2003 followed a particularly bad drought year and agricultural production has been favorable since then. However, at the same time, economic growth has slumped and per capita incomes have been in decline.
The general health status of Eritrea greatly improved after independence. Many health outcome indicators compare favorably with Sub-Saharan African neighbors, and are improving faster, although up-to-date comprehensive data on outcomes has been a challenge. According to the 2011 African Development Indicators report, the infant mortality rate decreased from 58 deaths per 1,000 in 2000 to 42 deaths per 1,000 in 2010, under-five mortality rate dropped from 89 deaths per 1,000 in 2000 to 63 deaths per 1,000 in 2010, child immunization rate was 95% in 2009 and access to safe drinking water has reached 80% in 2013. Based on DHS between 1995 and 2002, total fertility rate decreased from 6.1 to 4.8.
Success in some disease control programs, supported by the World Bank and other partners, is particularly impressive. While most other Sub-Saharan African countries suffer from an increasing HIV epidemic, HIV prevalence in Eritrea is estimated to be low and under control at about 0.8% of the adult population in 2009 compared to the Sub-Saharan African average of 5%. In addition, since 1999, the country has been able to reduce overall malaria morbidity by more than 86% and mortality due to malaria by more than 82%.
Nevertheless, important challenges remain. Rural households suffer worse health outcomes, and improvements are coming more slowly. Malnutrition is of particular concern among women and children. An estimated 46% of the population were estimated to be undernourished in 2002, and 40% of children were found to be underweight for their age. Around 37% of women have a low body mass index. Maternal mortality ratios have drastically reduced but are currently still high (380 per 100,000 in 2013 from 1,770 per 100,000 in 1990).
With expanding schooling opportunities, Eritrea has improved enrollment and completion of elementary school. The elementary school gross enrollment ratio stands at 87%, though slightly lower than the low-income countries and the Sub-Saharan African averages of 92%. With low girls’ enrolment relative to boys, the government approved the 2003 Eritrean National Education Policy to achieve equality between men and women. Furthermore, the government has also ratified and passed legislation related to gender-sensitive issues such as land legislation, prohibition of female genital mutilation, gender-based violence, and underage marriage. Through the National Union of Eritrean Women (NUEW), the government approved a National Policy in Gender (2004), the National Gender Action Plan (2003-2008), a separate strategy for female education, a gender-awareness strategy of the communities and an initiative to strengthen collection of disaggregated data for effective monitoring. Eritrea has also adopted a Female Circumcision Abolition Proclamation since 2007.
Eritrea is a young nation-state. After a 30-year war with Ethiopia, Eritrea attained de facto independence in May 1991 and de jure independence two years later. The initial years of independence were marked by impressive progress in rehabilitating basic economic and social infrastructure, improving social indicators, macroeconomic stability and economic growth. From 1993 to 1997, the economy grew at an average annual rate of 10.9%.
These development gains were interrupted when a border dispute with Ethiopia erupted into renewed conflict in May 1998.The Ethiopia-Eritrea Boundary Commission (EEBC) made a final “virtual” demarcation of the boundary at the end of 2007. This has been accepted by Eritrea but was rejected by Ethiopia. Tensions between the two countries remain high and both have troops positioned alongside the border. In a situation that has been described as "no war, no peace," Eritrea's government has remained in a state of heightened mobilization and border security remains priority. The stalemate is considered as a major impediment to the government’s development efforts as a number of possible national socio-economic initiatives and resources remain tied up.
The Government of Eritrea has declared that it is investing in three priority areas; food security and agricultural production, infrastructure development, and human resources development. However, Eritrea’s economic conditions remain challenging as a result of the global economic slowdown, a difficult macroeconomic situation, and limited physical and human capital. High budget deficits, resulting mainly from large military expenditure, and a large social safety net, restrict the government’s ability to maintain prudent fiscal targets. Moreover, revenue as a percentage of GDP moves drastically over time, for example from about 50% in 2003 to less than 19% in 2009, partly due to decline in private sector activity and foreign aid. But revenue from the mining sector, if managed prudently, creates prospects for improving the revenue-spending ratio. International remittances have fallen possibly due to the recent global financial crisis and a decline in remittances.
The country also continues to be impacted by political isolation and sanctions imposed by the UN Security Council over the government’s alleged role in the Horn of Africa insecurity. The majority of the population are young, and youth unemployment and underemployment is high. Half of the youth cohort, though well educated, have no access to jobs. Recurrent drought in the Horn of Africa region also poses a food security challenge.
Last Updated: Sep 22, 2015