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- GDP (PPP):
- $4.0 billion
- 8.7% growth
- 1.1% 5-year compound annual growth
- $735 per capita
- Inflation (CPI):
- FDI Inflow:
Eritrea’s economic freedom score is 36.3, making its economy one of the least free in the 2013 Index. Its overall score is essentially the same as last year, with improvements in the control of government spending and monetary freedom offset by declines in freedom from corruption and labor freedom. Eritrea is ranked 45th out of the 46 countries in the Sub-Saharan Africa region.
Eritrea scores very poorly in most components of the Index. Entrepreneurs have been pushed out of the formal market by an underdeveloped regulatory framework and weak property rights enforcement. Informal activity dominates outside the minerals sector and the government.
Strong GDP growth has been led by increased foreign investment in the mining industry, but substantial mineral revenues benefit only a narrow segment of the population. The public sector remains the largest source of employment. Chronic deficits due to large military spending plague public finance, worsening fragile monetary stability. A repressive central government continues to marginalize the domestic private sector, perpetuating an uncertain investment climate, and U.N. economic sanctions have greatly increased risks for potential investors.
Eritrea won its independence from Ethiopia in 1993, but relations between the two countries remain hostile. President Isaias Afwerki has ruled without elections since 1993, and the ongoing conflict with Ethiopia makes elections unlikely. In March 2012, Ethiopia launched an incursion into Eritrea, citing Afwerki’s support for terrorist activity as justification. Judicial independence is limited, and journalists and others have been held without trial for speaking against the government. In recent years, Eritrea has moved aggressively to reduce its reliance on external assistance. Aid relationships with some U.N. agencies and bilateral donors have been suspended or reduced, and information on conditions within the country has become scarce. Roughly three-quarters of Eritreans depend on small-scale agriculture and fishing, and it is believed that up to two-thirds of the population relies on government assistance for food.
The rule of law remains fragile and uneven, severely undermined by a weak and inefficient judicial system. Protection of property rights is poor. The government has a history of expropriating houses, businesses, and other private property without notice, explanation, or compensation. Pervasive corruption and cronyism continue to undermine efforts to improve the foundations of economic freedom.
The top income and corporate tax rates are 30 percent. The overall tax burden is estimated to be quite high, although taxation is erratic and poorly administered. Government spending is equivalent to 38.9 percent of total domestic output. The deficit has been chronically high at over 16.2 percent of GDP, and public debt amounts to more than 130 percent of total domestic income.
Procedures for establishing and running a business are opaque but costly. Published regulations are severely outdated, and the required minimum capital for launching a business equals over twice the annual average income. Labor regulations are not enforced effectively, and the underdeveloped labor market does a poor job of matching skills with needs. Monetary stability has been weak, and inflationary pressures continue.
Eritrea’s trade freedom remains severely restricted by prohibitive tariff and non-tariff barriers. The government-controlled economy is not attractive to foreign investment. Large-scale projects must be approved by the appropriate Office of the President. The financial system remains severely underdeveloped. All banks are majority-owned by the government, and private-sector participation in the system remains constrained.