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In the first decade, development cooperation between the EU, its Member States and Eritrea focused on reconstruction following the devastation during the war of independence. The European Development Fund (EDF) is the main EU instrument for development cooperation with African, Caribbean and Pacific (ACP) countries, including Eritrea. Its funding is provided by voluntary donations by EU Member States. The past EDFs for Eritrea aimed at restoring macroeconomic stability and viability.
The war with Ethiopia (1998-2000) and the resulting destruction of physical and social capital led to new needs in terms of post-conflict rehabilitation, which became the focal area of cooperation during the decade from 2000 to 2010 and emphasised both the reconstruction of physical infrastructure and the demobilisation of combatants.
A total of EUR 122 million was originally foreseen for the period of 2009-2013 under the 10th EDF. Due to changes in the Government of Eritrea's priorities, the initial plans were adjusted and a project portfolio of just over EUR 50 million is currently being implemented with EDF 10 resources. The largest EDF 10 supported programme, with a budget of more than EUR 40 million, is supporting food security and agricultural development. This multi-faceted project, implemented by the Ministry of Agriculture, supports activities along the production and marketing chain with emphasis on sustainable land and water development, including construction of photo-voltaic powered irrigation schemes, support to increase production and rural incomes and capacity building of producer groups and governments institutions.
Under the governance sector, projects to support the justice sector, community courts in particular, and the capacity building of public administration are implemented. Projects to support capacity development of the Ministry for National Development and other government institutions, such as the Office of the Auditor General, complement the EDF 10 project portfolio.
Inspired by the substantial renewable energy components within EDF 10 programmes and based on the assessment that the limited access to energy is one of the most crucial impediments to broad- based social and economic development, the Government of the State of Eritrea proposed renewable energy as the first focal sector for EDF 11. The overall envelope of the National Indicative Programme (NIP) for the period 2014-2020 is EUR 200 million, of which EUR 175 million shall be allocated to energy and EUR 25 million to governance and supporting measures.
In addition to funds from the NIP, the Eritrea-EU cooperation is supported from the EDF Regional Indicative Programme (RIP), from specific facilities, such as the EU-ACP Water and Energy Initiatives, and from projects funded from the EC budget through thematic programmes.
The EU’s relationship with Eritrea is based on the Cotonou Agreement, which provides for a development partnership and a political dialogue with ACP countries. Regular political dialogue in line with Article 8 of the agreement is important to exchange information and to convey messages, as well as an opportunity to develop or deepen cooperation on specific issues.
Relations between Eritrea and the European Union go back to the first years of Eritrean independence. The European Commission opened its delegation in Asmara in 1995, one of the first diplomatic missions to be established. Throughout the last 20 years, the EU has actively worked in cooperation with Eritrean authorities to improve the livelihoods of the Eritrean people. During all of this period, the EU has been advocating for the promotion of dialogue between Eritrea and its neighbours, as well as supporting Eritrea’s integration into regional institutions.
The EU’s relationship with Eritrea is based on the Cotonou Agreement, which provides for a development partnership and a political dialogue with most countries of Africa as well as the Carribean and Pacific regions ("ACP countries"). Regular political dialogue in line with Article 8 of this agreement is important to exchange information and to develop or deepen cooperation on specific issues. In this context, the EU and Member States representatives accredited to Eritrea have regularly discussed political issues of mutual interest, notably human rights and migration.
The EU–Horn of Africa Migration Route Initiative ("Khartoum Process"), launched in 2014 during the Rome ministerial conference, started cooperation on migration between the EU and the countries of origin and transit of migrants from eastern and north-eastern Africa. In close cooperation with regional and international organisations, especially the African Union and the United Nations, the EU is seeking to foster further regional integration and regional cooperation to address the challenges of irregular migration, as well as other issues of common concern. The Government of the State of Eritrea has actively participated in all international meetings of the Khartoum process as well as in the Valletta summit on migration in November 2015.
In 2011 the EU appointed a Special Representative for the Horn of Africa whose task it is to actively contribute to regional and international efforts to achieve lasting peace and security in the region. He has visited Eritrea on several occasions and discussed with President Isaias Afwerki and other leading officials matters of regional security and related challenges.
Eritrea is classified as a Least Developed Country (LDC) under the list established by the Committee for Development Policy (CDP) of the UN Economic and Social Council (ECOSOC). Due to the long-running liberation war and the recent border conflict with Ethiopia, Eritrea's economy has suffered serious setbacks which the country is currently trying to address. While no budget is published by the Government and the statistical basis is limited, reasonable estimates indicate that Eritrea's economy is largely based on agriculture, including a significant portion of subsistence agriculture, a rapidly developing mining sector with large-scale foreign investments, and a small manufacturing sector. Mining, fisheries, agro-processing and tourism are sectors with considerable untapped potential.
Suffering from limited rainfall and recurrent drought, Eritrean society has made tremendous efforts in terms of soil preservation (terracing and afforestation) and water harvesting, but it still has to import every year part of its food requirements, which puts significant strain on the foreign exchange reserves of the Government.
In late 2015, the Government has launched a major financial reform aid at reducing the informal trading sector and modernising the banking sector. It is also reviewing its economic policies and discussing with international partners ways of developing its human resources through target initiatives in education and vocational training.
As regards Eritrea-EU development cooperation, the European Development Fund (EDF) is the main EU instrument for development cooperation with ACP countries, including Eritrea. Its funding is provided by voluntary donations from EU Member States. In the first decade of Eritrea's independence and immediately after the border war with Ethiopia (1998-2000), development cooperation between the EU, its member states and Eritrea focused on post-conflict reconstruction, including the rehabilitation of physical infrastructure and the demobilisation of combatants. The recent EDF allocations for Eritrea aimed at restoring macroeconomic stability and stimulating socio-economic development.
The 10th EDF has been supporting projects that are directly linked to the basic needs and livelihoods of the Eritrean population. It is focused on strengthening food security, as well as good governance and the delivery of justice.
In January 2016, the Government of the State of Eritrea and the EU signed the National Indicative Program (NIP) for the 11th EDF, which puts a strong emphasis on renewable energy with a view to providing Eritreans with better access to clean, reliable, sustainable and affordable electricity. In addition, the NIP plans cooperation in the area of economic governance (statistics, economic planning and public finance management) and the implementation of recommendations of the UN-led Universal Periodic Review on human rights.
These sectors are and will be addressed also through EU financial instruments outside the EDF country allocation for Eritrea (e.g. through the ACP–EU Energy Facility, the European Instrument for Democracy and Human Rights, the Global Public Goods and Challenges Programme and the ACP–EU Water Facility).
Eritrea belongs to various regional trading blocs including the Common Market for Eastern and Southern Africa (COMESA), the Community of Sahel-Saharan States (CEN-SAD), and the Inter-governmental Authority on Development (IGAD). Eritrea is currently not a member of the World Trade Organisation (WTO).
The trade balance is projected to worsen from -5.0% of GDP in 2014 to -5.8% of GDP in 2015 due to higher growth in imports than exports. However, the major concern is that exports have been highly variable, from 1% of GDP in 2006 to some 15.1% of GDP in 2012, then down by 1.7% of GDP in 2013 before improving marginally by 2.4% of GDP in 2014. UNCTAD’s 2014 Report indicates that in 2012-2013 Eritrea’s merchandise exports were mainly primary products (e.g. Eritrean food and agriculture; minerals, metals and ore), accounting for about 86.9% of the total, while manufactured goods represented only 9.7%.
Based on trade figures for 2015, Eritrea`s total trade with the EU was over 100 million Euro.
The volume of import to the EU was EUR 45.2 million originated mainly from Bulgaria (EUR 34.7 million). Other important partners were Spain, Germany, France and Italy.
The export volume from the EU accounts for EUR 63.1 million. The leading trade partner here is Italy, followed by Germany, Belgium and the Netherlands.
Trade with other developing countries represents only 11% of the total, compared to about 87% with the United States and Canada. Imports are mainly manufactured goods, accounting for 60.8% of the total, compared to 38.5% for primary goods.
The GoSE continues to engage with the international community. In 2014, Eritrea participated in the African Development Bank Group’s Annual meetings in Kigali, Rwanda, the Annual Meetings of the International Monetary Fund (IMF) and World Bank Group and the UN General Assembly. A side event was organised at the 2014 UN General Assembly during which Eritrea showcased its performance in the Health MDGs. Since 2013, the government has submitted a Universal Periodic Review (UPR) of human rights to the UN and demonstrated its commitment to ensuring that the recommendations are implemented. UN delegations have also been welcomed into the country to discuss pertinent development issues with senior government officials.
Eritrea has skilled people with experience in entrepreneurship, commerce, and international trade. Added to its strategic location in relation to the countries of the Middle East and Asia, this should offer significant opportunities. However, the country remains less competitive than East African countries, while the 2014 World Bank Logistics Performance Index (LPI) ranks Eritrea at number 122 out of 160 with a score of 2.08 out of 5, reflecting a deterioration since the 2012 rankings of 2.11 and 2010 of 1.70. Trade challenges to address are in customs management, infrastructure, and logistical competence.
The industries which contribute to foreign currency earnings include:
i) mining projectsii) fisheries at a limited scale due to infrastructure gaps, including energy supply and cold storage facilities; and iii) the manufacturing industry. This last is comprised of about 200-300 medium sized enterprises representing 80% of industrial GDP and presently operating at very low capacity utilisation (26% on average), mainly in the textile/leather and associated food sub-sectors. The rest are small and micro-enterprises.
Source: AfDB, OECD, UNDP 2015 African Economic Outlook 7
The GoSE constructed a free trade zone in the port city of Massawa in 2001. Interest to operate in such zones is mainly shown by Chinese. Few foreign companies operate in the zone, and whether it actually operates per the terms of the declaration is difficult to determine. Proclamation 115 issued in August 2001 declares that in the zone there will be: 1) no taxes on income, profits, or dividends; 2) no customs duties on imports; 3) no currency convertibility restrictions; 4) no minimum investment; 5) 100 percent foreign ownership; and 6) 100 percent repatriation on profits and capital.
The overall objective of European Union (EU) cooperation with Eritrea is to ensure improved livelihoods of the Eritrean population through poverty reduction and the achievement of the Millennium Development Goals (MDGs) so that Eritrea can achieve sustainable social and economic development of its people. While pursuing its economic and social development, Eritrea is facing considerable challenges. Energy security is one of the major prerequisites for the development of all economic and social sectors, as well as for the improvement of the livelihood of all Eritreans.
For the 11th EDF, the EU and the Government of the State of Eritrea have agreed that the energy sector should be a priority. In line with the Agenda for Change and the EU's approach to sustainable growth for human development as well as GSE's priorities, the focus will be on supporting energy as a sector with a strong multiplier impact on Eritrea's social and economic development. An envelope of EUR 175 million is intended for improved access to clean, reliable and affordable energy, out of a total indicative allocation to Eritrea of EUR 200 million in programmable funds.
Poverty reduction and an expansion of economic output, particularly in higher productivity sectors, will require a significant increase in electricity generation and distribution. With 50kWh per year, the per-capita electricity consumption in Eritrea today is one of the lowest in the region. Furthermore, almost 100% of Eritrea’s power generated is fossil fuel based - a situation which is not sustainable.
The situation of Eritrea’s energy supply system is characterised by massive dependence on traditional biomass fuels to cover domestic energy requirements, lack of easy access by about three quarters of the population to modern energy, and almost total reliance on imported oil as a source of modern energy services in particular electricity. This issue of reliance on imported oil is compounded by the fact that 22% of the produced energy is lost in transmission and distribution, and the generated power is not sufficient to serve the population. Eritrea is especially rich in renewable energy resources, whereas some fossil fuel resources (oil and gas) have yet to be adequately explored and exploited. Eritrea enjoys high solar radiation around the year and considerable wind energy potential, especially in the southern coastal areas and in some wind passes of the highlands. The potential for solar and wind energy utilisation is therefore substantial. In future, solar and wind energy will certainly play an important role in the Eritrea's energy mix.
An Eritrean coherent energy policy will first of all help Eritrea. A comprehensive study on the future development of the energy sector (2015-2040), and most specifically setting up the National Power Development Master Plan, is urgently required to arrive at an economically viable way to create a better energy generation mix for Eritrea’s economic development.
The Eritrean government has in the recent years proactively participated in several EU projects in the renewable energy field leading innovative actions such as:
The 40 mio Euro programme funded from the 10th EDF is expected to contribute to improving households' food security and the livelihoods of several hundreds of thousands of Eritrean and increase the production of high-value crops by up to 10%. The action will contribute to poverty reduction through sustainable socio-economic growth in rural areas and enhanced sustainability of rural livelihoods. The project consists of three components:
Support to the Office of the Auditor General – the project aims to contribute to promoting effectiveness, accountability and transparency of Public Financial Management (PFM) in Eritrea by promoting an accountable and transparent institutional auditing framework in Eritrea through the development, revision and implementation of manuals on financial audit and performance audits for the OAG, a general purpose audit manual for private audit firms, and the training of auditors.
This project aims to upgrade the skills and knowledge of civil servants, public administrators or managers in charge of planning and implementing the priority sectors of the National Development Plan. he Eritrean Centre of Organisational Excellence (ERCOE), in Embatkala, in charge of the project, intends to enhance the efficiency, effectiveness and accountability of service provision in Eritrea. This project is in direct support of any EU sector support to Eritrea. Apart from training and education, rehabilitation of the ERCOE training centre is also undertaken.
Access to Justice (community courts) The overall objective of the project is to support the government's efforts to facilitate access to justice for the population of Eritrea. The purpose of the project is to improve the services provided by the Community Courts in Eritrea. The project includes a capacity-building component and infrastructure component. In the framework of the capacity-building component, the programme aims to fully integrate the traditional systems of community courts and customary law with the formal rule of law while the infrastructure of the community courts is modernised: selected courts are supplied with photovoltaic stand-alone systems for power supply and IT equipment.
Grassroots organisations and social dialogue (e.g. National Confederation of Eritrea Workers, National Chamber of Commerce, Eritrean Women in Agribusiness Association).
This project is supporting capacity development at the Ministry of National Development and other government to facilitate the implementation of the Eritrean Government's activities related to development and, more particularly, to EU-funded projects. EU projects are implemented in a decentralised management approach through the NAO-Services, which ensures that activities are always aligned with the Government's policies. The project includes support to infrastructure as well as significant training components.
- e.g. contribute to the socio-economic development of Eritrea through an improved railway system. The contract funds the pre-feasibility study on the rehabilitation of the existing railway and the potential extension of the railway to the Western part of the country.
- Energy for development (photovoltaic, wind, geothermal)