Eritrea has been devastated by thirty years of war and recurring drought. A large proportion of the population is dependent on food aid for survival. Almost all towns and cities have suffered from extensive bombing raids and some are completely in ruins. Reconstruction and revitalization of the economy are major concern.

Today the Government of Eritrea must address the emergency needs of the population and refugee returnee while attempting to revitalize the economy so the Eritrean people will be able to stand on their own feet tomorrow.

For the first two years after liberation until an internationally observed referendum in which Eritreans determined the status of their country was completed, Eritrea had a provisional government and no formal status in the international community.. The country's political status had a significant impact on the economic situation. It had no access to international financial institutions. At the same time, Eritrea has no local or foreign currency reserves.

Emergency and Recovery Action Program

The government prepared an Emergency and Recovery Action Program to address immediate reconstruction needs as well as to begin making some inroads on development issues. The total cost of the program is slightly less than $2.5 billion. The economic recovery program focuses on three major areas: transport, agriculture, and industry.


Many roads were damaged or destroyed during the war. The Ethiopian army tore up the railway for use in constructing trenches. The port of Massawa was badly damaged by bombing raids from February 1990 to May 1991. These problems inhibit the movement of goods, information, and people both within the country and abroad.

Repair of the transport network is necessary for the revival of agriculture and industry and the development of a civic culture in which all citizens participate. Two thirds of the budget for transport rehabilitation is for roads. Road repair and construction is much cheaper than port and airport rehabilitation and the large portion of funds allocated to roads will ensure that all parts of the country have access to a more modem transport network.


Eighty percent of the population depends on agriculture for their livelihood. The war, drought, deforestation and erosion have severely inhibited agricultural activity in the country. While Eritrean farmers got excellent rains in 1992 and 1993 for the first time in many years, many sold or consumed productive assets (seeds. tools. Livestock) in previous years in order to survive. Farmers have been unable to take full advantage of the good rains.

Today about 70% of the population is dependent on food aid for all or part of its annual food supply. The PGE wants to end this food dependency and lay the basis for national food security. This involves: ' enhancing farmers' productivity, pro~vision of seeds, fertilizers, and implements, and
securing reliable water sources.


During the war many Eritrean industries were closed or transferred to Ethiopia. The remaining industries closed during the last year and a half of the war as there was no normal supply of electricity or water. This has contributed to a high level of unemployment in urban areas.

Rehabilitation in this sector involves: reviving stagnant industries, and
supplying raw materials and investment capital.

Other Areas:

The program contains a large budget for construction. This is mainly for housing for refugee returnee, the internally displaced, and those who remained in their village or city but need repair or reconstruction of their homes. The remainder is for construction of schools and clinics. The program also includes rehabilitation of vulnerable groups (the disabled and orphans), water sanitation and supply, education, health, and energy.

Investmnent Code

To encourage much needed investment in the Eritrean economy, the government 
issued a new investment code in December 1991. Its objectives are:
 develop and utilize the country's natural resources,
 expand exports and encourage the substitution of imports by local production,
 increase employment opportunities, introduce new technology and knowledge,improve and increase 
accelerate social development, develop priority areas, and
 encourage investment.

The code provides a variety of incentives in designated investment areas. These incentives include exemption from customs duties and taxes, exemptions from income tax, preferential treatment in allocation of foreign exchange for imports, tax reductions, and liberal provisions for remittance of foreign exchange abroad.

Currently the government is managing many industries previously owned by the Mengistu regime. Most of these industries, including commercial agriculture, were badly run down and require significant investment to make them viable again. The government seeks to privatize these industries.

Property Ownership

In November 1991, the government issued a decree establishing a commission to review property assets and return property nationalized by the Derg. This nationalization was harmful both in its effects on private housing maintenance and construction, and on business and industry.

The Future

The government is committed to a market economy in a democratic political context and the encouragement of both Eritrean and foreign investment. It believes that this is the best means to ensure that in the long run Eritrea will become a selfreliant sustainable economy offering its people a better way of life.

For more information, contact:
Research and Information Section
Embassy of Eritrea
910 17th street NW, Suite 400
Washington DC 20006
Tel:	(202) 429 1991	
Fax:	(202) 429 9004