Eritrea: Investing

FDI in Figures

According to UNCTAD's World Investment Report 2023, FDI flows to Eritrea were negative by around USD 32 million in 2022, in line with the levels recorded in the two previous years. The total stock of FDI was estimated at USD 1 billion at the end of the same period, representing around 43.2% of GDP. The most lucrative investment opportunities in Eritrea typically arise from direct negotiations with the People's Front for Democracy and Justice (PFDJ), the sole legal political party, rather than through market-driven private investment channels. In 2023, the African Development Bank Board sanctioned USD 49.9 million for the construction of a 30-megawatt solar photovoltaic power plant in Dekemhare. The project is slated for completion by 2027. Additionally, the Chinese company Sichuan Road and Bridge Group has acquired a 50% stake in the Colluli project. The mine is scheduled to commence operations in 2026.

Eritrea's investment environment isn't favorable due to several factors: the absence of a comprehensive commercial code, limited access to international financial networks except for government dealings, and stringent governmental oversight over imports and exports, all of which significantly impede foreign investment opportunities. The Eritrean Nakfa, the national currency, lacks convertibility, and stringent restrictions are in place on the repatriation of profits from the country. Although the official 1994 Investment Proclamation No. 59/1994 theoretically declares all sectors (except domestic retail, domestic wholesale, import, and commission agency companies lacking bilateral reciprocity agreements) open to investors, in reality, this law has been effectively suspended. Private investment terms and sector determinations are dictated by the ruling People's Front for Democracy and Justice (PFDJ). The government exercises tight control over all sectors of the economy, with the majority of large enterprises either fully or partially owned by the government or the PFDJ) Additionally, the government holds the authority to mandate the closure of businesses without providing any explanation or avenue for legal recourse. Foreign ownership and control of enterprises in Eritrea face both statutory and de facto limitations. For instance, foreign-owned mines are required to allocate a 10% stake to the Eritrean National Mining Corporation (ENAMCO), with the possibility for ENAMCO to acquire an additional 30% equity in a project. However, regulations in other sectors lack clarity and consistency. Eritrea has signed Bilateral Investment Treaties with Italy, Netherlands, Qatar, and Uganda, but only the one with Italy has entered into force. Eritrea has designated two Free Trade Zones: one in the port city of Massawa and another along the common border with Sudan. However, neither of these Free Trade Zones is currently operational. Overall, Eritrea’s poor business climate is reflected in international assessments: the country ranks 8th among the 180 economies on the 2023 Corruption Perception Index and 170th out of 184 on the latest Index of Economic Freedom.

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Latest Update: May 2024