AFDB Second Quarter Socioeconomic Report on Eritrea

Economic performance in Q2 of 2014 remains low due to frequent power shortages, low remittance inflows and low agriculture performance in 2013.
Economic performance in Q2 of 2014 remains low due to frequent power shortages, low remittance inflows and low agriculture performance in 2013.

By African Development Bnak (AFDB),

THE African Development Bank (AFDB) has released the second quarter 2014 socio-economic development Bulletin across the African continent providing a summary information on the previous quarter’s major developments across the sub-region for which data are available on a timely basis.

The quarterly Bulletin focusing on East Africa is produced by country economists and country program officers of the African Development Bank Group’s (AfDB) East Africa Regional Resource Center (EARC), Nairobi, Kenya. The publication covers thirteen countries including Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan1, Sudan, Tanzania, and Uganda. 

ERITREA

Real GDP growth remained weak during Q2 2014 due to frequent power shortages, low remittances and slow recovery from a recent drought that led to crop failures particularly the main cereals. Poor infrastructure also remains a major impediment to economic growth while low public revenues have continued to constrain the needed investments in the agriculture sector.

The mining sector remains the leading driver of growth and the completion of Hirgigo power plant is expected to boost gold and cement production at the Koka mine and cement factory near Massawa, respectively. The recent rise in demand for cement by Qatar related to ongoing construction of stadiums for the 2022 football World Cup is expected to boost Eritrea’s real GDP growth.

FISCAL POLICY AND PUBLIC DEBT

The fiscal policy stance was aimed at increasing domestic revenue receipts to close the budget deficit and finance infrastructure investments particularly in energy and transport. Towards these goals, expanding the tax base is a key measure being taken by the Government to increase the mobilization of domestic revenues. Increased production in the existing and new mining projects and Government’s equity participation in the new mining ventures are expected to lead public revenue growth in 2014.

MONETARY POLICY AND FINANCIAL SECTOR 

Monetary policy stance was geared towards achieving macroeconomic stability while boosting foreign investment to support public revenue generation and economic growth. Headline inflation remained in the 6.3 – 6.5% range during the second half of 2014 largely due to the effects of recurrent droughts on food prices.

In spite of the Government’s liberalization of foreign exchange transactions, the official exchange rate remained at 15.4 Nakfa per USD. The Government’s indirect control of diaspora remittances flows and the exchange of foreign currency in Eritrean Banks and other financial institutions continues to constrain the growth of investment finance flows.

External Sector o Infrastructure investments in Qatar are set to continue driving the growth of Eritrea’s cement exports, but rising imports of capital goods required in the mining sector are expected to sustain the trade deficit.

OTHER NOTABLE DEVELOPMENTS

Political Developments

According to the Government’s message communicated during the 23rd independence celebrations held on 24th May 2014, the drafting of a new constitution for Eritrea will soon be launched. A new constitution is expected to present a vital opportunity for political reforms in Eritrea and signifies an improved political landscape for inclusive growth.

RESULTS ACHIEVED

Selected outputs and outcomes generated by Bank projects in the 1st half of 2014

Bank support through the Higher Education project (SHEP) funded the construction of a student library, workshops and lecture rooms at the Eritrea Institute of Technology (EIT) thereby contributing to the Country’s skills and human resource development. This project also supported capacity building for teaching, research, and services aimed at reducing the number of foreign trainers, lecturers and related costs at the country’s institutions of higher education. Details of the capacity building program are discussed under the flagship project.

Flagship Project: Support to Higher Education-Eritrea Institute of Technology

Approved by the Boards of Directors on 28th April 2010, the objective of the UA 12.90m ADF grant is to contribute to the building of capacity of teaching, research, and services at the country’s institutions of higher education.

The programmed target outputs include in-country training of 85 students, planned for three cohorts comprising a total of 70 students who have already started their post-graduate program and of which 11 have graduated and are teaching at the Eritrea Institute of Technology. With regard to studies abroad, 91 students are currently studying abroad, 29 at PhD level, and 62 at Masters Level. Considerable progress has also been made in distance education and so far 7 students were enrolled at UNISA, while 104 students were enrolled at the Swiss Management Centre University in Switzerland.

The key target outputs for 2014 include construction of one student library, laboratories, workshops, and lecture rooms at the Eritrea Institute of Technology. Similar civil works are on-going at the agricultural college. The photo shows Eritrea Institute of Technology being prepared for official handover by the contractor by third quarter 2014.