Monday, December 22, 2014

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What We (Don't) Know About Eritrea's Economy

Eritrea perfectly illustrates the amount of guesswork involved in economic analysis of Africa.
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A couple of guys chatting in Asmara, Eritrea. Photograph by Charles Roffey.

At the start of this week, Nigeria's GDP figures nearly doubled after the government recalculated economic output. Statisticians rebased their numbers to include changes to the economy, and in a heartbeat Africa's most populous country had also become its richest, leapfrogging South Africa by a mile, and shooting up the global rankings to join the likes of Norway and Poland.

Although the ground under their feet was exactly the same, the country they were living in on paper had suddenly shifted for Nigeria's 170 million population. Or should that be 180 million? Or 140 million? Or even higher or lower? The actual size of Nigeria's population is also based on questionable estimates and evidence, and it too is heavily contested.

The fact that Nigeria's statistics are so deeply shrouded in doubt is striking especially given that it is, as we now know, the richest country on the continent. This begs the question: if our understanding of Nigeria rests on such shaky ground, what about poorer, less well-connected, and more closed off countries? For example, what about Eritrea?

No data

Trying to get any data about Eritrea can be a thankless task. Access to information is very limited and the authoritarian regime's relationship with any media apart from those run by its own information ministry is strained at best. The Horn of Africa nation is deeply isolated internationally and is considered to have one of the worst records in the world when it comes to civil liberties, political rights and domestic freedoms.

Unsurprisingly, international headlines about the Red Sea state are rare, and when there is coverage, it is usually about runaways fleeing the nation's grip, abductions of Eritrean refugees in the Sinai Peninsula, human rights violations, or tentative predictions about how long the regime can last.

With virtually no data to work with, it unsurprising that analysts also tend to shy away from the country. In continent-wide studies, Eritrea is often coloured in grey to demarcate 'no data', while even multilateral organisations such as the African Development Bank sometimes have to release reports that pretend Eritrea does not exist.

The 2012 African Economic Outlook Report, which is probably the most comprehensive analysis of the country for several years, provides a few valuable if limited insights. But even this most complete report on record misses out some hugely important features such as population size.

Given the difficulties in estimating Eritrea's population − existing figures range from about 3.5 million to almost double that at 6 million or more − it is perhaps wiser not to guess at all. However, the size of the population has enormous consequences for all per capita figures. The World Bank, for example, estimates Eritrea's income per head to be $504, basing its calculations on population figures of just over 6 million. If Eritrea's population were in fact closer to the 3.5 million mark, that income per head figure could be as much as $864.

The black market

However, especially when it comes to Eritrea, even reliable figures can only tell us so much. For instance, the country's black market for currency exchange significantly complicates things.

The Eritrean currency has been pegged at 15 Nakfa to $1 since 2005. Due to high inflation over many years, the currency has lost value, but the government keeps it fixed in an attempt to tackle external debt. This has contributed to the blossoming of a parallel and illegal internal market for currency exchange. Those caught exchanging currency on the black market can be imprisoned for up to 18 months, but the entire economy depends on such illegal exchanges.

In late 2012, the rates in this illicit market offered three times the amount of Nakfa per dollar compared to official rates. And in March 2013, this already massive gap widened as the Eritrean government overvalued the national currency even more, fixing 10 Nakfa to $1. One important implication of this when examining Eritrea's national economy is that using the official exchange rate is likely to hugely overestimate the real level of economic development. Using the rates found on the burgeoning black market would suggest the country is significantly poorer than if using the government's rates.

Going a step further into the real detail of Eritrea's economy, unofficial sources report that most households in the capital Asmara receive an average of $350 per month in undeclared remittances from relatives abroad. There are two particularly well-known mechanisms through which these clandestine transfers takes place: alongside shipments of contraband goods from Sudan, and when relatives from abroad visit.

These transfers are likely to be hugely significant for Eritrea's economy. After all, a wage in the formal sector will at best leave you with 1500-2500 Nakfa per month. According to official rates, that comes to $150-250, but in reality it is worth considerably less and is barely enough to survive. For most families in Asmara, therefore, remittances are crucial and often constitute the majority − sometimes as much as 90% − of their overall income. Counterintuitively perhaps, Eritrea's alarming brain drain ends up significantly stimulating its economy.

However, not all families in Eritrea are so lucky. A pattern of regional migration has occurred within the country in which those that have no relatives abroad are destined to a rural life as subsistence farmers cultivating mostly barren land, while those with close ties to family outside the country can maintain a life in the capital.

A shot in the dark

After Nigeria's GDP was rebased earlier this week, nothing concrete changed. Nigerians didn't suddenly have more cash in their wallets, the unemployed were still unemployed, and the many malaises in the national economy went nowhere. However, in the medium term, the updated figures could have a considerable impact, especially as foreign investors look at the country in a different, far more rosy light.

After all, statistics and economic analyses affect policies. Reliable figures can be crucial in helping actors − whether governments, individuals, corporations or multilateral organisations − make the right decisions, while unreliable ones can do the very opposite. When it comes to many countries, not least Eritrea, a great deal of caution needs to be taken before attempting any kind of shot in the dark.

Think Africa Press welcomes inquiries regarding the republication of its articles. If you would like to republish this or any other article for re-print, syndication or educational purposes, please contact: editor@thinkafricapress.com.

For further reading around the subject see:

 

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Comments

How can one write so much about Eritrea when they know nothing about it. Especially since all the premise used to start this article was false or exagerated! There have bee countless foreign press officials who have visisted Eritrea and if you are a credible reporter, not a gun for hire, you can go to Eritrea and speak to anyone you wish. You will get a far more accurate picture that way than by sitting behind a desk in the west and reading fabricated stories!

Look at his bio. He WAS in Eritrea. 

What i ask to our professor or phd, it that he forget to mention..that Eritrea is one of few countries in the so called poor counties that say THANKS to any AID, even usaid..in general to donors..isn't this magnificent mr. phd? To the contrary what mr pdh want us to tell, we have a vision: Eritrean vision in the continent could be summerized in one word: PANAFRICANISM, which Africa unfortunaltly nuanced in time due to rich countries blue propoganda (orchestrated propoganda) would mean that at this particular moment due to infiltration of people like our mr. pdh our Continent Africa is fooled by vimpires wanting to suck its natural wealth..in the forms of ngo, donors, humanitarian aid ect..What mr pdh forget to tell, is that if other countries would follow the SELF RELIENCE motto, there wouldn't be a place in Africa to maphia corporations except on fair based bilateral ties..what Africa is now is not different from ante 1960 when was colinized..

As i know Eritrea as mr. phs, cause i was working during 2005 as italian school teacher, it might be that the author been dismissed from the eritrean government who is know the most anti-aid state in africa rather..or anti ngo, while is easy to see these so called donnors stroll with their 4x4 cars..doubt about the verdicity of this article.

I suspect that this comment is from a troll posing as an irrational Eritrean ultranationalist to flush out rational and coherent discussion on this issue. With that said, the author of this paper is clearly biased and basing his conclusions on speculation. The irony of his work is that it also fudges and leaves out data, leading the reader to erroneous conclusions about Eritrea. As yourself, "why has he not shown me one piece of hard evidence to corroborate his claims?" Citing the works of entities not operating in Eritrea and only speculating as he does, will not suffice as evidence. In sum, this article is a shoddy piece of work and an unfortunate low point for Think Africa Press. I hope TAP will produce better work in the future. 

In my opinion, the author demonstrated a pretty good knowledge of Eritrea. If you have the feeling that he's been wrong, please show us where and why? What premise are false or exagerated? Can you explain your idea please? Please stop accusing without explanation.By the way, as another commentator has already remarked, HE HAS LIVED AND WORKED IN ERITREA!

Joestein you did PHD to study insdustrialisation and economic growth in Africa?  what a waste of time. I am sure i did not discourage you from persuing your carreer because you know that that is not what you will be doing. now your reporting lack orginality it resemble the same repititve pro modern day colony propoganda that we read listen and watch in BBC and CNN and the other EU  media. even the photos are copied from them one should not read the entire artilce about Africa to find out that its baised. Just like any other western media no matter how clean how modern how civilized an african city looks like they manage to find a grabge and people who are very poor to take photo and publish it in their channal. like many others this article has no substance. 

What doesn't have substance is your unfounded comment. Out of all The barbaric actions of the dictatorial regime in Eritrea that we lived through this is a tip of the iceberg. Shamelessly you blame western media and organizations for the destructive actions of African regimes. Please wake up and do your part in alleviating the pain.

Jostein Hauge, Stateted " Eritrea perfectly illustrate the amount of guesswork involved in economic analysis of Africa"  it is amazing, you are exctly doing what you accousing others reporting. what data do you have all those statestics and percentage you wrote.  you are just anather western hired brut nothing less.