- GDP (PPP):
- $9.4 billion
- 5.0% growth
- 3.4% 5-year compound annual growth
- $1,581 per capita
- Inflation (CPI):
- FDI Inflow:
Eritrea’s economic freedom score is 38.9, making its economy the 177th freest in the 2019 Index. Its overall score has decreased by 2.8 points, with a steep plunge in business freedom completely overwhelming increases in scores for judicial effectiveness and labor freedom. Eritrea is ranked 47th among 47 countries in the Sub-Saharan Africa region, and its overall score is well below the regional and world averages.
Eritrea remains one of the world’s most difficult places to do business. Poor governance and lack of commitment to reform hamper economic freedom and drive many Eritreans into the informal sector. Mismanagement of public finances, underdeveloped legal and regulatory frameworks, and structural anomalies severely undermine private-sector development and impede productivity growth, dynamism, and overall economic growth. Monetary stability remains fragile, and inflation is very high, largely reflecting excessive money creation to fund fiscal deficits. Enforcement of property rights is marginal, and the rule of law is weak.
Ethiopia’s annexation of Eritrea as a province sparked a violent 30-year struggle for independence that ended in 1991 with Eritrean rebels defeating government forces. The autocratic and repressive rule of Isaias Afewerki has created a rigidly militarized society. Mandatory conscription can be for indefinite periods. Eritrea and Ethiopia normalized relations in 2018, but Eritrea remains under U.N. sanctions for allegedly supporting armed groups in the Horn of Africa, for occupying disputed territory of Djibouti, and for violating sanctions against North Korea. The government has expanded military-owned and party-owned businesses to complete the president’s development agenda. Copper and gold are important exports, but military spending drains resources needed for the construction of public infrastructure.
All land is considered state-owned, and property rights are nearly nonexistent. The little private property that does exist can be expropriated without due process or compensation. The politicized judiciary is understaffed, underfunded, and unprofessional. The autocratic one-party state, widely considered to be one of the world’s most repressive, is ruled by the president and his inner circle. Corruption is a major problem.
The top personal income and corporate tax rates are 30 percent. The overall tax burden equals 8.0 percent of total domestic income. Over the past three years, government spending has amounted to 29.5 percent of the country’s output (GDP), and budget deficits have averaged 14.7 percent of GDP. Public debt is equivalent to 131.2 percent of GDP.
The regulatory regime is not conducive to entrepreneurial activity, and procedures for running a business are opaque and costly. Greater delays in completing certain procedures have made it harder to start a business. The vast majority of the population is involved in subsistence agriculture, and formal employment is rare. Monetary stability is weak, and subsidies and price controls are core features of the command economy.
The combined value of exports and imports is equal to 37.5 percent of GDP. The average applied tariff rate is 5.4 percent. Foreign investment in several sectors of the economy is restricted, and state-owned enterprises distort markets. Eritrea’s financial system remains very underdeveloped. Capital markets are nonexistent, and long-term financing is hard to obtain.