- GDP (PPP):
- $10.0 billion
- 4.2% growth
- 3.3% 5-year compound annual growth
- $1,657 per capita
- Inflation (CPI):
- FDI Inflow:
Eritrea’s economic freedom score is 38.5, making its economy the 177th freest in the 2020 Index. Its overall score has decreased by 0.4 point due to lower scores for property rights and judicial effectiveness. Eritrea is ranked 47th among 47 countries in the Sub-Saharan Africa region, and its overall score is one of the lowest in the world.
Index grading of Eritrea began in 2009, and its economy has scored higher than 40 only three times since then. GDP growth rates, fueled by the agricultural and mining sectors, are relatively meaningless in a country that remains one of the world’s least developed, with 65 percent of its people living in rural areas and 80 percent of them dependent on subsistence agriculture for their livelihoods.
Perhaps in the future, the authoritarian Eritrean government will give way to one that pursues the broad reforms needed to transform the country into a market-based economy.
Ethiopia’s annexation of Eritrea in 1962 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, and Eritrea and Djibouti made progress in resolving their border dispute. Given those positive diplomatic developments, the U.N. lifted the targeted sanctions on Eritrea that had been in place since 2009. The government has expanded military-owned and party-owned businesses in pursuing the president’s development agenda. Copper and gold are important exports, but military spending drains resources needed for the construction of public infrastructure.
Virtually 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 and militarized 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 endemic.
The top personal income and corporate tax rates are 30 percent. The overall tax burden equals 8.0 percent of total domestic income. Government spending has amounted to 29.1 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 14.1 percent of GDP. Public debt is equivalent to 129.4 percent of GDP.
Few large private businesses exist, and the government places tight restrictions on economic activity. Most of the population engages in subsistence, rain-fed agriculture. Having a large share of the labor force engaged in military service has interfered with agricultural production and helped to derail more robust economic development. Monetary stability is weak, and subsidies and price controls continue to be core features of the command economy.
The total value of exports and imports of goods and services equals 53.3 percent of GDP. The average applied tariff rate is 5.4 percent. Made worse by institutional shortcomings, productivity growth is impeded by nontariff barriers. Onerous regulations are impediments to foreign and domestic investment. Credit costs are high, and access to financing is very limited.