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Resuscitate Development in Eritrea

Resuscitate Development in Eritrea

by Kidane Tekle

“Ask not what your country can do for you, but what you can do for your country”, John F. Kennedy

Eritrea had been in war for liberation from 1961 to 1991 and Ethio-Eritrea border conflict from 1997 up until the recent signature of cessation of hostility. During the war of liberation, lots of factories and agricultural estate farms were either at large destroyed or closed. The 1997-2000 border war had also its toll in number of human deaths, hampering the economy, and littering of farm lands with mines. It immensely destroyed the infrastructure in the border areas and forced its manpower to be engaged in national service for the last 20 years. In billions of dollars costed the country in its defense expenditure, which could have been used in opening schools and hospitals, in establishing agricultural estates and industries.

Eritrea is resourcefully rich with abundant mineral wealth, sea coastal line, agricultural land, different flora and fauna, and hard-working people. Now peace accord was signed with Ethiopia. It is believed to have peaceful coexistence between the two countries. The peace deal can herald a conducive environment for people to freely move and work within the country and start investing. There is a fertile condition in the ground to tap resources.

Hence, it is imperative to resuscitate the development of the country by revitalizing its industry, agriculture and hotel and tourism. Jump starting the economy has to be given priority by reviving industry, agriculture, tourism, and fishery. The manpower and resources, that were funneled to the war machine, will now have be directed towards development endeavors.

There are different policies pursued towards development by different countries all over the world. There are market-led and state-led approaches, which differ fundamentally on a crucial point. The market-led approach assumes that countries are assigned certain comparative advantages within which developing nations should work, while the state-led approach seeks to shape the comparative advantage that they have to use in the international economy. That is why every country has a comparative advantage in trading with other countries. State-led approaches try to develop the capacity for greater comparative advantage in the international market instead of just working within the comparative advantages it may currently possess, which may be cheap labor, mineral resources, or agricultural raw goods. This approach seems more advisable for a country striving for economic development and a better position in the international economy.

In Eritrea, it was said that it was following industrial-led development and trying to emulate Singapore. Singapore exited from Malaysia in a unique historical situation. It had high level of unemployment, lack of sanitation, little supply of potable water, and ethnic conflict (majority Chinese and minority Malay) that marred the image of the country. Singapore was forced to look out for opportunities it could get by linking with the developed world and attracting their manufacturers to produce in Singapore and export their products to the developed countries. Whereas, Ethiopia was pursuing agricultural-led development in the first era of the EPRDF led government. Now, it is following agricultural development led industrialization (ADLI) by focusing on small-holder farming as a development strategy. This strategy was adopted in response to its food security and agricultural productivity, which geared the ADLI. The strategy promotes the use of labor-intensive methods to increase productivity by applying chemical inputs, diversifying production, utilizing improved agricultural technologies and deploying huge land resource that the nation is endowed with. Still, shortage of food is rampant and affects people in Ethiopia.

The other point of strategy pursued by Eritrea is the decentralizing of development to its various regions. The purpose is to equally develop all parts of the country and have equilibrated development. Equitable distribution of wealth may not be always possible but as a strategy, Eritrea would like to realize that many of its citizens to enjoy the fruit of the growth and development. As evidenced in many countries, few people have enjoyed the fruit of growth in the economy. Besides this, Eritrea has worked for self-reliance in food by building dams, micro dams and water reservoirs .

1. The Way Forward:

It has been dubbed by the Westerners that Eritrea is ‘North Korea of Africa’. They said that it has closed itself and isolated from the world though diplomatic connection with some countries exist. They said its military conscription lasts indefinitely. They fail to understand or do not want to understand that Eritrea and Ethiopia were in ‘no war no peace’ situation. This has created a problem during the last twenty years for the country and foreign investment. Airlines cannot fly because of no-fly zones. Infrastructures were destroyed during the war. Adding insult to injury, the United Nations passed embargo and sanctions on Eritrea. The country was in a limbo because of all these negatives.

They write at length on the shortage of electricity, which has been solved for good at present with the installation of solar power and increasing the capacity of Hergigo power plant. The potential is immense in place of biomass as wind farm (Assab and Gahro, Dekemeahre and Gizgiza), micro and small hydropower and to some extent large scale in some sites, and geothermal power in Alid volcanic mountain to combat current power shortages to meet future expansion of the economy in industry, agriculture and tourism. The investment need where private sector can participate on the energy sector is immense.

The Eritrean President explained that the last 20 years of ‘no war and no peace’ as lost years. Development was stopped partially during these years. Manpower and financial and material resources were funneled to the war machine. Eritrea is no more now at the cross-road and we see opportunities and development through the tunnel.

1.1 Demobilization of the National Service Members:

The Eritrean government introduced compulsory national services in 1995. By this proclamation, every high-school finalist undertakes 18 months of national service and out of which six months was allotted to military training . When Ethiopia started the border war, then the 18 months time was extended and national service were forced to serve for many years. Eritrea’s army is said to be of significant percentage of the population through national service following the outbreak of war in 1997/98.

As a matter of fact, the cost of maintaining the huge armed forces in Eritrea is immense. The cost of ration, ammunition, uniform, training, etc., of a huge army has taken the lion’s share of the budget of the country. There should be demobilization now with the advent of peace with Ethiopia. However, there is a requirement for a standing army, navy and air force personnel. There are also policemen, standing army, navy and air force, who will stay in their job after demobilization after a selection process based on physical or their wish to serve or be demobilized. These ones have to be given intensive training, better salary and benefits, and have to be well-armed and uniformed. Their number has to be compatible with the budget of the country as development is to be a priority in the forth coming years. The demobilization will reduce costs in running a huge army.

It has to be noted that some of the people in the national service are engaged in civil services. Some are working in government offices. Somer serve in schools and hospitals. There are bankers. These have to be retained in the organizations in which they have rendered their services with pocket money as national service personnel. They have to be given commensurate training in their assignments and basic salaries.

There are different experiences in demobilization of military personnel in the world. The Demobilization of United States armed forces after the Second World War began with the defeat of Germany in May 1945 and continued through 1946. The United States had more than 12 million men and women in the armed forces at the end of World War II of whom 7.6 million were stationed abroad. This demobilization exercise is very significant in the number its deals with and the relative cost incurred.

There are also demobilization and reintegration programs undertaken in post conflict Africa. In Namibia, Zimbabwe, Angola and Nicaragua political circumstances created an added pressure to implement the program quickly once the agreement to demobilize had been reached. As an alternative to demobilizing to show commitment to the program, in some countries (i.e., Uganda) the military has provided information key to planning reintegration (such as the settling-point for veterans, the timing and scale of demobilization) and has worked with donors to design programs. In the case of Chad, access to relevant information on those to demobilize was initially not forthcoming, in part because of the voluntary nature of the program, and possibly because of lack of full commitment by key military leaders during the initial phase of the program.

1.1.1 Donor support:

Reintegration programs which rely on providing assistance to ex-combatants at their place of resettlement, instead of at camps, are complex and require substantial advance preparation and planning. At the same time, in countries such as Angola, some donors appeared hesitant to commit funds and other resources until the strength of the peace agreement was demonstrated , at which point demobilization would have already begun. However, without donor assistance, the countries under post conflict lacked sufficient resources to plan or launch effective Demobilization and Reintegration Programs (DRPs) in a timely manner.

These national service personnel of Eritrea are patriots , who has served their country with blood and sweat protecting its sovereignty. They served in challenging conditions of heat and natural calamities in the frontline in the trenches. They should be given certificates and medals for their services to their beloved country, Eritrea a priori the demobilization program.

Donor fund is required to give trainings to those who stay in their civil and military services and, also, to those demobilized and integrated to the society. There should be seed capital provision to those demobilized ones to start business in their own accord and initiative.

1.2 Pension Scheme:

There is a Social Security Scheme introduced under Proclamation of 2003 in Eritrea. It focusses on the National Pension Scheme, the Public Sector Pension Scheme and the Martyrs’ Survivors Benefit Scheme. This has been only partially implemented. There are a number of ex-fighters and civil servants working in their old ages both in the military, police and civil services. The Scheme has to become practical and those beyond the retirement age have to be pensioned and be replaced by young people. These young people will energetically provide their labor and serve as an impetus in revitalizing and boosting the economy with vigor and valor.

2. Privatization and the Private Venture in Eritrea:

The "private economy" is typically a synonym for the "private sector of the economy," which is composed of all the entities (producers and consumers) that are not an agent or agency of government. Theoretically, when the private sector is doing well, that means workers are in demand, unemployment is down, wages are up, and productivity is high. Government cannot just make this happen by spending money.

In most developing countries, which pursue private sector economy, it is evident that few people get richer and richer while most gets poorer and poorer. There is no as such laissez faire in the world in practical terms unless theoretical. Rather, we have monopoly in place of free market in the developed countries even like the United States of America.

Alternatively, we have mixed economy. Mixed economic systems are not laissez-faire systems, because the government is involved in planning the use of some resources and can exert control over businesses in the private sector. Governments may seek to redistribute wealth by taxing the private sector, and using funds from taxes to promote social objectives. Trade protection, subsidies, targeted tax credits, fiscal stimulus and public-private partnerships are common examples of government intervention in mixed economies. These usually do not generate massive economic distortions, but instead are instruments to achieve specific goals. However, the role of the government in the economy cannot be down-turned. Mixed economy will be very crucial in developing countries. A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. According to neoclassical theory, mixed economies are less efficient than pure free markets, but proponents of government interventions argue that the base conditions such as equal information and rational market participants cannot be achieved in practical application.

Countries with a mixed economy include Iceland, Sweden, France, the United Kingdom, the United States, Russia and China. These countries have a mix of government spending and free-market systems based on the share of government spending as a percentage of gross domestic product. Some governments spend much more money in proportion to GDP, while others spend much less. Iceland's government spending is 57 percent of the country's GDP. That means the other 43 percent is private industry. Sweden's government spending is 52 percent of its GDP. The United Kingdom features 47.3 percent government funding, and the United States is 38.9 percent, as of 2014. Most countries feature mixed economies, which makes it easier to trade and do business on a global scale. Most countries feature mixed economies, which makes it easier to trade and do business on a global scale.

Advantages of a mixed economy include more efficient private industries, reduced government regulation, better stabilization when free-market principles fail, greater equality to prevent absolute poverty and government programs to promote stabilization. Disadvantages of a mixed economy are too much regulation that stifles free enterprise, too much government borrowing during crises and inefficient allocation of resources.

Eritrea can emulate experiences of countries with mixed economy. As a matter of fact, the government’s role is much bigger than the private sector. Hence, the mix has to be balanced in order to stimulate growth and create employment. Small scale businesses should be left to the private sector. Even banks and insurance should also be privatized along side some companies and factories. Major undertakings that require huge capital should be left to the government. In this connection, areas for private sector should be clearly specified. However, the share of the government versus the private sector has to be seen in terms of its contribution to the development of the country.

In order to stimulate growth, it is imperative to have an investment climate conducive for the private sector to grow. An unfavorable investment climate is one of the many hindrances faced by investors in underdeveloped nations. Regulatory reform is often a key component of removing the barriers to investment. A number of nonprofit organizations have been established for the purpose of improving the investment climate and spurring economic development in these countries. Also, some investors are willing to take on the high level of risk and volatility associated with investing in an unfavorable climate because of the potential that the high risk will be rewarded with high returns.

Governments often consider that economic and fiscal conditions are the most critical factors for attracting foreign investment. While economic and fiscal conditions certainly are critical, the most important factor in establishing a favorable business and investment climate is arguably the political and legal environment. Countries may offer low tax rates and free land but if investors fear expropriation of assets, revocation of incentives, labour unrest, civil strife, or inability to deal with natural disasters, then they will be disinclined to invest. Investors have to be confident that the country in question is committed to attracting foreign investment and that investments are safe. Unstable political environments increase risk, which investors generally prefer to avoid. In addition, political factors such as corruption, bureaucracy, and lack of rule of law are not only risks but also add direct cost to the investment. The Black Sea Economic Co-operation Council explains the relatively low levels of Foreign Direct Investment in the Black Sea region (Northern Turkey and Georgia) by citing foreign investors complaining of unacceptable levels of bureaucracy, of unclear, overlapping and frequently changing legislation, and of corruption.

The private sector is also constrained by an underdeveloped financial and banking sector characterized by low access to credit and poor saving incentives. The problem of low access to financial services, especially credit, is undermining the private sector’s efforts to participate in the government’s privatization program. It has also curtailed the growth of both formal and informal trade along the border areas, thus lowering the potential impact of regional spill-over effects.

In the World Bank report Doing Business 2014, Eritrea was ranked 189th out of 190 countries in 2018. In the same year, Rwanda ranked 41st, Kenya 80th, Tanzania 137th, and Ethiopia 161st. Why Eritrea failed to rank better was because of low indicators attributed to starting a business (184), dealing with construction permits (186), getting electricity (187), getting credits (186), and trading across border (189). The attributes that ranked well are enforcing contracts (119) and paying taxes (148). There has no statistics provided for Eritrea and most often the above kind of assertions are made on estimates. Had there been proper provision of statistics by Eritrea, many of the reports made by international organizations could change.

To improve the business climate, the government has invested in developing human skills and major physical infrastructure, including the establishment of the Massawa free-trade zone. It has further taken measures to provide a more business-friendly environment through easing the conditions for business registration, approval of plans and establishing a project in the free zone, as well as easing access to and use of foreign exchange. Getting electricity is assumed to have improved. However, credit provision and construction permits have to be given due weight.

2.1 Re-opening of Closed Factories and Revitalizing Agriculture and Industry:

Eritrea’s industry and agriculture were at the highest peak of development during the Italian colonial era. De Nadai and others were producing and exporting vegetable products. Eritrea exported four times more than it imported during the Italian colonial era.

There are lots of closed factories in Eritrea that require scrutiny by way of their viability with the century in which they were established versus the technological changes. The opportunity cost of reviving them or replacing them with new ones has to be evaluated. But some of the following may be viable and will generate revenue and create jobs if start functioning.

  • Sava Glass Factory was producing bottles and glasses. It was producing glass products in which decorations was printable on the glasses. This can be a viable factory in meeting local needs and for export and generating foreign exchange.

  • The salat production from the sea is still undertaken and viable albeit it may require expansion to increase its production. In addition to this, Assale salt mines covering a salt plain of 6,000 sq. km. can be revived. Its product can be used for consumption and industry

  • A.M.A.P. (African Matches and Paper Factory Ltd.) was producing matches and paper. There is a demand for both products in Eritrea and neighboring countries. Export earning can be made out of these products by sending them outside the country.

  • Industria Ceramica Ing. Carlo Tabacchi in Asmara was producing small characteristic ceramic cups customarily used among the mid-eastern peoples and known as ‘finjan’. The demand for these cups is immense in Eritrea and Ethiopia. China is now producing these cups and export them to these countries.

  • Industriale De Rossi for the Exploitation of the Dum Plant, which produced in large quantity buttons for clothing for export. Package sacks were also produced from the dum leaves. As plastic is becoming environmentally hostile, the sacks made of dum leaves will be of demand in Eritrea and elsewhere. The button can be used for military uniform.

  • Construzioni Meccaniche Vincenzo Costa - Asmara was producing weighing balances, brick moulding presses and any other iron work in demand by domestic and export markets. With the advent of peace, there will be much construction of houses and brick moulding machine will be of much need.

  • Caritiera F.Lli Peronne - Asmara was producing packing paper and cardboard. It also produced paper and printed calendars. The vitality of these products goes without saying as plastics have nowadays lost their use because of their negative consequences on environment.

  • Paper Factory M. Villani - Asmara was producing a brownish packaging paper. This also is as important as the one cited above.

  • I.M.L.A.S.A. (Industria Minieraria Laterizi E Affini S.A.) - Asmara was producing 300,000 bricks monthly and also hollow bricks. S.AI.L.A. - Asmara was also producing 100,000 bricks in a month. Ditta Mangano - Asmara produced 150,000 to 300,000 bricks per month. The renunciation of this factory is of immense use to meet demands from construction of buildings.

  • Conceria E. Baldinis & C. - Asmara and Conceria Di Debaroa Del Dott Carini - Asmara were tanning hides and skins. You have sheep, goat and cow skins now not used and thrown out littering all places in Eritrea. These could be collected and tanned. Dry skins can be sold to markets in Asia, especially to China.

  • Industria Miele Milani - Asmara was producing honey and bottling it for sales to the market. The pollen gathered was exported to Europe for cosmetics manufacturing.

Dr. Woldai Fitur said recently, that “there has been a change of heart in regard to opening Eritrea for investment. He cited that agriculture, tourism, fishing and infrastructure as sectors the Eritrean government sees as priorities for its new policy of enticing US capital.” Well, Egypt was said to be involved in agriculture and fishery with the agreements reached during last year. Eritrean Afars have the skills and if provided with bigger boats and nets can easily increase the production of fishing. Morocco abundantly fishes due to adoption of sophisticated gear, freezing equipment and larger vessels and it has generated huge export revenue from the fishery.

Tourism can be developed in Eritrea as there is a huge potential. There are historical sites to visit. There are places to relax. However, there ere not enough hotels to accommodate incoming tourists. Even those existing are dilapidated and need major renovation. There need to ensure availability of electricity and water at all times. The hotels are the first images of the country in which people visiting from outside the country evaluate. Besides the above, there should be bus tour arrangement to cater to the needs of tourist visits all across the country.

3. Fund for Development

We have different versions to fund the development and jump start the economy. It can be bilateral and multilateral donations. Non Governmental organizations can play a role. Governments through their aid agencies like USAID, GTZ, JICA, DFID, etc can extend donations with provision of project proposals. There is the dependency syndrome consequence of course and, however, the donor fund’s role can be limited to the initial development strategy.

3.1 Donors Fund

Donation should be solicited to cover demobilization cost and to settle the demobilized soldiers. The demobilization cost to be incurred is to give seed capital for those who to engage in small businesses and also to construct housing for their dwelling. International organizations like United Nations (UNDP), World Bank, and international non governmental organizations should be requested for funding the demobilization and to enhance the economy in addition to the ones mentioned above as aid agencies of governments.

Donors fund where most places or countries they are sensitized on. They heed calls to direct their action where the need is more rampant to address. Hence, at this time of reconciliation between Eritrea and Ethiopia, donation can be solicited by providing programs and projects to donor countries and foundations. Especially, the demobilization aspect can be of significant importance to get fund.

The Diaspora may, also, contribute to social improvement. In this context, the community in Minnesota contributed to hospitals by way of hospital beds and medical equipment is one example. There are many, of course, but not mentioned. We assume such contribution will continue in a larger scale once the communities are sensitized and take action.

3.2 The Diaspora and Development:

We have the established diaspora and the new exiles, who have strong relations to their homeland. Life & Peace Institute states that, “roughly one million Eritreans had fled the armed conflict with Ethiopia and settled in neighboring Sudan, in various Middle Eastern countries, Europe, North America and Australia. The vast majority of these Eritrean refugees supported the independence struggle from abroad, although political loyalties were divided between the Eritrean Liberation Front (ELF), which had initiated the struggle in 1961 and the Eritrean People’s Liberation Front (EPLF), which had dominated the liberation war form the mid-1980s on and led the country to independence. Only a small number of Eritreans returned from exile for good, while the vast majority chose to remain in their respective host countries.”

Eritrean Diaspora Network states that, “the diaspora has significant potential in promoting the country’s economic, social, and political development. For instance, as the diaspora has grown and evolved, so has its financial capacity. This means that it can be an even greater catalyst in economic growth, above and beyond the 2 percent tax.” The diaspora Eritreans will be the beacon of hope as a critical actor of development to their country’s.

3.2.1 Diaspora Remittances:

Remittances money has covered a significant part of the gross domestic product of Eritrea. The remittances originate from a monetary transfer that can be formal (through an accredited intermediary) or informal. Formal channels, which encompass money transfer operators (e.g., Western Union, MoneyGram, Monetary Transit, Xpressmoney, Transfast, Turbocash, Dahabshiil, and so on). All these operate in Ethiopia working with the banks in money transfer.

The hawala involves a broker who delivers cash at the request of a counterpart in another country who is serving a client. Traveling co-workers or community members who have a bank account and agree to receive cash from a sender are the most common means of informal transfer. However, new players using online and mobile platforms (e.g., TransferGo, Exchange4free, OrbitRemit and Money Express) are disrupting the MTO (Money Transfer Operator) model, with the promise of lowering transaction fees.

The problem in connection with the above is that the Banks in Eritrea have not evolved with the changes in banking in the world and limited to traditional banking transactions. It is only Western Union that functions there, albeit, not effective. Hence, many resort to illegal money transfer operators. Therefore, the Banks in Eritrea have to look and find as many as possible legal fund transfer operators so that the foreign exchange by way of transfer can effectively be directed to the coffer of the country. The provision of automatic teller machines (ATMs) is totally absent. The banks should adopt to changes in global banking industry.

3.2.2 Diaspora Investments:

The desire of diasporas to assist those people who have remained in their homelands can be turned into a driver for much needed savings and investments in the countries of origin. Countries that have understood this potential have established legal frameworks to facilitate diaspora investments, including through the issuance of debt instruments and the establishment of intermediary agencies. The following instruments help to make the simple monetary transaction into a saving or investment decision and can be adopted by Eritrea.

Diaspora bonds: Sovereign debt instruments that are traded in the home or destination country. They are traditional bonds sold by the home country to its own diaspora as an alternative to borrowing from capital markets. The first diaspora bonds were issued by China and Japan in the 1930s; Israel and India entered the market in the 1950s; while in the 2000s Ethiopia, Nigeria and Ghana were the first in Africa to do so. Proceeds can be used to finance major public sector projects including energy, housing, and other economic infrastructure.

Diaspora investment, insurance and pension funds: Established by governments or financial institutions, these funds can facilitate diaspora investment and retirement plans in the home country. Diaspora funds can invest in short-term debt securities and/or in equities. These types of funds are being experimented in Kenya (Kenyans Abroad Investment Fund), and Rwanda (Rwanda Diaspora Mutual Fund and Global Diaspora Investment Fund). Social housing and real estate funds have also started to market their products to diasporas.

Diaspora venture capital (and impact investing): Programs that attract a country’s diaspora to fund the growth of small businesses, while earning social and financial returns. These vehicles invest mostly but not exclusively in social enterprises⎯often SMEs⎯operating in healthcare, education, clean energy, financial inclusion and agriculture. An example is the India Investment Initiative established by the Calvert Foundation with the support of USAID.

Insurance funds: Insurance products (i.e., health and life insurance policies) can be sold to members of diasporas. The insurance premiums are paid by workers overseas to the benefit of family members living in the country of origin. Access to health insurance is more effective than direct transfers to cover health expenditures.

Diaspora Direct Investment (DDI): In effect, a form of FDI, DDIs are direct investments from companies connected to the diaspora in productive activities in the home country. DDIs are facilitated by top executives working in foreign firms in the diaspora or by entrepreneurs, owners and shareholders operating overseas. For example, with support from development partners, the Government of Moldova's Program for Attracting Remittances into the Economy (2010-2014) attracted US$ 4.6 million of non-reimbursable financing that was leveraged in US$ 10.2 million of investment in local enterprises.

Securitization of future remittance flows: Banks can be allowed to leverage future remittance receipts to obtain capital. While no official data are available, estimates indicate that more than US$ 20 billion could have been raised by banks in Brazil, Mexico and Turkey using future remittances as collateral.

Other services (diaspora banking): Financial products customized to members of the diaspora's needs, including special categories of deposit accounts in multiple currencies and transnational loans. For example, MFIC, an US-based financial services corporation, has partnered with micro-finance lenders and remittance transaction operators in El Salvador, Guatemala and Bolivia to provide transnational mortgages to immigrants in the USA and Spain. If held in the home country, diaspora banking saving products can expand the operations of local financial institutions.

Ethiopian Trust Fund of $1 per day to rehabilitate the economy and to contribute to the coffer of the state. What do we learn we Eritreans from the Ethiopians? What do we learn from the experiences of other countries? Eritreans are very known for giving and for assisting their family. Now we go hand in hand in financing the demobilization of the national service members. We contribute by establishing businesses, hotels, factories, banks and mechanized farms and create employment opportunity for the would-be demobilized national service members. In addition to establishing the above-mentioned enterprises, the Government of Eritrea should open a Trust Fund Account to which all Eritreans in the diaspora transfer their contributions. This money will be used to revitalize the economy, open the above mentioned factories so as to absorb the demobilized national service members.

References: - the World Bank

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