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- GDP (PPP):
- $7.8 billion
- 1.7% growth
- 4.2% 5-year compound annual growth
- $1,195 per capita
- Inflation (CPI):
- FDI Inflow:
Eritrea, one of the world’s most isolated and economically stagnant countries, has been governed under emergency rule since 1998. Its economy remains severely underdeveloped, and the rule of law remains extremely fragile. It is estimated that about 9 percent of the population has fled the country in recent years.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 42.7 (up 3.8 points)
- Economic Freedom Status: Repressed
- Global Ranking: 173rd
- Regional Ranking: 45th in Sub-Saharan Africa
- Notable Successes: None
- Concerns: Rule of Law, Management of Public Finance, and Open Markets
- Overall Score Change Since 2012: +6.5
The public sector remains the largest source of formal employment, and the informal economy accounts for much non-mining private-sector activity. Chronic deficits exacerbate already fragile monetary stability. A repressive central government continues to marginalize the private sector and perpetuate an uncertain investment climate.
Isaias Afewerki has ruled this one-party state since it voted in 1993 for independence from Ethiopia after winning a 30-year war with its southern neighbor. The hostile relationship between Ethiopia and Eritrea occasionally flares into conflict. According to the Committee to Protect Journalists, Eritrea is the world’s most censored country. It is also subject to U.N. military and economic sanctions for allegedly supporting armed groups in the Horn of Africa. Economic growth is far too low to make a dent in pervasive poverty. Copper and gold are important exports, but military spending drains resources from development of public infrastructure. The government declines most international food aid. Diaspora remittances are a major source of revenue through a yearly tax of 2 percent levied on all diaspora earnings.
This one-party state ruled by the autocratic regime of the president and his small circle of senior advisers and military commanders is widely considered one of the world’s most repressive. Corruption is a major problem. The politicized and understaffed judiciary has never ruled against the government. Protection of property rights is poor. The state often expropriates private property without notice, explanation, or compensation.
The top personal income and corporate tax rates are 30 percent. The overall tax burden is estimated to equal about 10 percent of GDP, but taxation is erratic. Government spending amounts to 29.8 percent of total domestic output. The deficit has been chronically high at over 10 percent of GDP, and public debt equals more than 100 percent of total annual income. The reliability of Eritrea’s budgetary statistics is questionable.
Prolonged political instability and the lack of legal transparency hamper the regulatory environment. Published regulations are severely outdated and ineffective in practice. In the absence of a functioning labor market, labor regulations are not enforced effectively. Monetary stability has been weak. Subsidies and price controls have been a core feature of the country’s command economy.
Eritrea’s average tariff rate was 5.4 percent as of 2006. Importation of goods is costly and time-consuming. There is no private ownership of land, and state-owned enterprises distort the economy. Foreign investment in some sectors is prohibited. The financial system remains severely underdeveloped. All banks are majority-owned by the government, and private-sector participation in the system remains constrained.