This country profile was published in November 2008 in our annual 'Africa in 2009' issue. The next edition, 'Africa in 2010' will be on sale 23 November 2009.

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Eritrea’s prolonged stand-off with Ethiopia – following the fiercely-fought border wars around the turn of the millennium – is often interpreted as President Issayas Afewerki’s way of focusing the population’s attention on an outside enemy and thus as a diversion from the need for internal reforms and democratic elections.Eritrea’s more recent invasion of a portion of Djibouti’s territory, and the June 2008 armed clashes which killed 60 on the border, seemed to fit into the same pattern. Given the huge presence of US and French troops in Djibouti, it seemed unlikely that a full-scale war could be unleashed, but Djibouti’s President Omar Guelleh rattled his sabre at a UN Security Council meeting in October. It is not evident that the UN could do for Djibouti what it was unable to do for Ethiopia.


Still defying the world, the president is committed to playing the regional power game for all it is worth, sheltering Somali resistance leaders in the capital Asmara. Issayas is happy to see the Ethiopian army bogged down in Mogadishu, and there is speculation that he is channelling arms to the remnants of the Union of Islamic Courts there.
Relations with Sudan are far from cordial, and the isolationist self-sufficiency that has become the orthodoxy has seen the regime reach out to the Iranians and the Chinese. The media and political opposition are still brutally policed, with many members of both occupations in jail, and the power structures around Issayas, including those who might be tempted to succeed him, remain opaque.


The people of Eritrea face an increasingly difficult outlook. Most of the country’s trade was with Ethiopia before the war. The youth are conscripted into a spartan and demanding military, and many thousands flee into Ethiopia as refugees.


Since 2003, GDP growth has been almost stagnant at around 1%, but this may improve slightly to 2% in 2008/09. The economy has been dragged down by several factors, including poor rains that have weakened the agricultural sector, a hostile business climate and especially the slowing of remittance flows from the large diaspora. Unease with the Issayas regime meant that these flows were already dwindling. A recession in the eurozone and US, where a large part of the diaspora lives, will mean an even greater reduction. Donor lending is providing some respite, including a rural electrification programme. 


The fall in foreign exchange reserves has been partially offset by the signing of five mining licences, with companies from China, Australia, Canada and South Africa all interested in the prospects for gold. Investors are still wary of the government after the 2004 freeze on mining exploration. The largest project to date, scheduled to begin production in 2010, is Canada’s Nevsun Resources’ gold mine at Bisha.


There are hopes for oil discoveries, after two blocks in northern waters were awarded to a joint Chinese-Eritrean venture, Defba Oil Share Company. The company was set up through a partnership between the government and a Bahrain-registered entity with both Chinese and Saudi connections. It planned to start seismic work before the end of 2008. However, no oil has been found in all previous exploration efforts in the country. The US company CMS Oil and Gas sold off of its Eritrean holdings in 2002, while French company Perenco exited in 2006.