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Eritrea: A High-Risk Business Environment

A recent assessment of Eritrea’s business climate using compliance risk assessment tools has revealed a high-risk environment for companies operating in the country. The tools, which analyze various factors such as political stability, economic conditions, and regulatory frameworks, have given Eritrea an overall rating of “E”, indicating the highest level of risk.

Key Strengths and Weaknesses

While Eritrea has several key strengths that contribute to its high-risk environment, these are overshadowed by major weaknesses. On the positive side:

  • Extensive mineral resources: Eritrea is rich in potash, copper, gold, silver, and zinc.
  • Large agricultural sector: The country produces significant amounts of maize, barley, vegetables, and livestock.
  • Influx of diaspora funds: Eritrea has received a significant amount of funding from its diaspora community.

However, these strengths are countered by:

  • Recurrent droughts and climate shocks: These have had a devastating impact on the economy.
  • Closed nature and critical debt level: This makes it difficult for businesses to operate.
  • Government dominance of the economy: This has led to extreme poverty and high emigration rates.

Growth Prospects

Despite these challenges, growth is expected to continue in 2022, driven by mineral exports and the Colluli mine project. However, this growth will be fragile and vulnerable to external shocks, such as changes in global commodity prices or political instability.

Inflation Concerns

Inflation is also expected to remain a concern, with high import costs for oil and food driving up prices. The country’s public debt remains alarmingly high, which could have serious implications for its public finances.

Ongoing Conflict

The ongoing conflict in the Tigray region of northern Ethiopia has sparked international concern over human rights violations and war crimes. This conflict has led to increased tensions on the border with Ethiopia and may further destabilize the already fragile business environment.

Conclusion

Overall, the compliance risk assessment tools suggest that Eritrea remains a high-risk destination for businesses, with significant challenges facing companies operating in the country.