ERITREA
Integrated Industrial Policy for
Sustainable Industrial Development
and CompetitivenessPart I

Industrial Development: – An Analytical Framework

Ministry of Trade and Industry

United Nations Development Programme

United Nations Industrial Development Organization
May 2004

STATE OF ERITREA
Integrated Industrial Policy for
Sustainable Industrial Development
and CompetitivenessPart I

Industrial Development: – An Analytical Framework

UNIDO funded/executed Integrated Industrial Programme for Sustainable andCompetitive Industrial Development – Policy component US/ERI/00/162 and
YA/ERI/99/420

UNDP funded/UNIDO executed project NC/ERI/98/005 Capacity Building for
Industrial Policy Formulation and Sustainable Human Resource Development
May 2004iAcknowledgements
Within the framework of the UNIDO Integrated Programme for Sustainable andCompetitive Industrial Development and the UNDP funded/UNIDO executed
project on Capacity Building for Industrial Policy Formulation and Sustainable
Human Resource Development, UNIDO was commissioned by the Ministry ofTrade and Industry (after consultation with the Ministry of International Cooperation,
Macro Policy and Economic Coordination) to undertake an industrial sector survey
and advice on a policy framework.
Recognising the benefit to be derived through public private sector consultations, it
was agreed that the industrial policy should be defined through an interactive
process bringing together the key stakeholders in government, the private sector, theuniversity and selected development agents in civil society. A national workshop
was organised in April 2002 to reflect and deliberate on the industrial structure ofEritrea, challenges and opportunities for a competitive and sustainable industrial
sector in an increasingly global economy with a view to defining an integrated
industrial policy. The workshop also reviewed international best practices for
manufacturing improvement and competitiveness, as well as the enabling
environment for private sector-led industrialisation with a focus on export promotion.
Subsequently, a sample survey of 56 industrial enterprises was conducted to assess
the competitiveness platform in Eritrea. This industrial sector analysis therefore
draws heavily on the actual field survey that was conducted in 2002. A Round Tableof the stakeholders was held in December 2003 with a view to reaching consensus
on the pillars and key actions required for sustainable industrial development andcompetitiveness in Eritrea.
The Integrated Industrial Policy for Sustainable Industrial Development andCompetitiveness is in two parts, namely: Part I: Industrial Development – ananalytical framework; Part II: Industrial Policy Framework
The analysis and policy framework were prepared by a core team of internationaland national experts through an interactive process involving the key stakeholders in
Eritrea.
Members of the core team include Amaha Kidane, Tadesse
Woldeyohannes, Remie Toure, Areef Suleman, Christo van Zyl, Sengal
Woldentensae, Iyob Tesfu, Tesfamariam Yosief, Tesfay Haile, Kiflemariam Zerom,Peter de Valk and, Ashley Peterson. Many in Eritrea, in both the public and private
sectors, as well as Eritrea’s cooperating partners, provided comments andcontributions, notably, Berhane Abrehe, Abraham Kidane, Akberom Tedla, Erike
Beyena, Simon Nhongo, Cajus Pedersen, as well as senior officers of government
ministries, departments and institutions and senior executives of the organised
private sectors and industrial enterprises. Ms. Liliane Bruck and Shireen Kajeeprovided secretarial and administrative support.
The analysis was funded by UNIDO, through UNIDO administrated funds and the
UNDP under an SPPD project.
The findings of the analysis and recommendations are those of the authors andshould not be attributed in any manner to UNIDO. UNIDO should not be held
responsible for the accuracy of information in this analysis.

iii

This document has not been formally edited.

iv

Contents
Executive summary ...................................................................................................vii
1

Introduction ......................................................................................................... 1
1.1
1.2
1.3
1.4
1.5

2

Industrial policy: evolution and current approaches ............................................ 7
2.1
2.2
2.3

3

An overview of total manufacturing ............................................................................. 11
Food processing industry............................................................................................ 13
Textile and clothing industry ....................................................................................... 15
Leather and footwear industry .................................................................................... 17
Wood and paper industry............................................................................................ 18
Chemical industry ....................................................................................................... 20
Non-metallic mineral industry...................................................................................... 21
Basic metal product industry....................................................................................... 23
Fabricated metals, machinery and equipment industry............................................... 24
Transport equipment industry ..................................................................................... 25
Export orientated development ................................................................................... 27

Eritrea’s competitive platform ............................................................................ 29
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9

5

Africa’s initial efforts ...................................................................................................... 7
Policy efforts in the mid 1970s and 1980s .................................................................... 8
Policies in response to the real challenges of a globalised economy ........................... 9

Industrial structure and performance................................................................. 11
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11

4

Historical perspective.................................................................................................... 1
Macro-Policy of the Government of the State of Eritrea................................................ 2
National Economic Policy Framework and Programme 1998-2001,
Macro Policy ................................................................................................................. 2
Transitional Economic Growth and Poverty Reduction Strategy 2001-2002................. 3
Export development strategy ........................................................................................ 4

Analysing competitiveness.......................................................................................... 29
Drivers of competitiveness.......................................................................................... 30
Other drivers of competitiveness................................................................................. 31
Factor conditions ........................................................................................................ 33
Demand conditions ..................................................................................................... 47
Related and supporting industries .............................................................................. 51
Firm strategy, structure and rivalry.............................................................................. 53
Government ................................................................................................................ 54
Quality, environmental management and sustainable development........................... 55

Concluding remarks .......................................................................................... 59

Annex I – Competitiveness survey questionnaire..................................................... 61
Annex II – Competitiveness survey results............................................................... 63
Annex III - References.............................................................................................. 73v

Executive summary
A major prescription that has emerged to address the challenges of globalisation isthat of collective responsibility for the design, development, implementation andmonitoring of policies and strategies for effective governance, economic
management and industrial development.
The Government of the State of Eritrea has defined a macro-economic policy forrecovery, reconstruction and development, which emphasises the new role of theGovernment as a facilitator for private sector development. After years of conflict
and war with Ethiopia, during which the economic fabrics of the country were
devastated, it is quite apparent that there is a crisis that requires the collective
attention of both the Government and the private sector. Such interaction between
the two key stakeholders would ensure confidence, create an atmosphere of sharing
information and transparency and the emergence of policy decisions that all sides ofthe economy could live with.
The starting point of this analysis is the macro-economic policies and strategies
aimed at transforming the socio-economic landscape of Eritrea by revitalising the
productive sectors; increasing production, in particular, export-oriented production;
generating employment; eradicating poverty, as well as achieving political andeconomic stability and sustainable development. Macro-economic policies andstability per se would not ensure sustainable industrial development. Other
conditions should be in place for the private sector (expected to be the engine of
growth and development) to respond positively to macro-economic stability. The
globalisation of economic activities also makes it imperative for the private sector tobe competitive.
In Chapter 2 of this analysis, a critical assessment is made of the evolution andcurrent approaches to industrial policy development, while at the same timecomparing and drawing from the experiences of other countries in other regions of
the world. The emergence of new policy approaches in response to the challenges
of a global economy is also analysed only to conclude that each country is uniqueand that it is now generally accepted that there is no universal definition of anindustrial policy. Nevertheless, a common denominator of industrial policies is thatsuch policies should aim at industrial competitiveness.
To successfully define an industrial policy, both the public and private sectors shouldhave a clear picture of the structure and performance of the industrial sector.
Chapter 3 of this analysis is therefore an assessment of the macro-economic
situation and industry, more specifically, manufacturing. Eritrea’s manufacturingsector comprises of large, medium and small enterprises producing a wide variety of
products. The sector is faced with structural problems and constraints, ranging frominadequate critical skills for industry, including managerial, technological andengineering capabilities; raw material shortages; weak physical infrastructure andindustrial support services; high cost of energy and transportation. Nevertheless, thecountry has some potential for a dynamic and sustainable industrial development
focusing on export-oriented industries. The measures being proposed by theGovernment for an export-oriented industrialisation are also reviewed in Chapter 3 ofthis analysis. Existing manufacturers will be obliged to change their strategies,vii

production methods, corporate management, as well as the way they operate in thedomestic market. However, it is recognised that certain prerequisites should be inplace for industrial enterprises to grow and compete.
Chapter 4 seeks to understand and analyse competitiveness, the various drivers ofcompetitiveness and Eritreas’s competitive platform, which will inevitably provide theingredients for a realistic integrated industrial policy. The competitiveness analysis
draws heavily from a sample survey of 56 existing industrial enterprises representing
various sub-sectors in Eritrea with a view to identifying cross-cutting constraints andthe factors or drivers of competitiveness and increased industrial production.
In the concluding section of this analysis, a case is made for an industrial policy to be
defined in an interactive process. The recommended industrial policy framework is
described in Part II of this analysis on Integrated Industrial Policy for Sustainable
Industrial Development and Competitiveness.

viii

1

Introduction

1.1

Historical perspective

Unlike other developing countries in Africa, Eritrea has a long history ofindustrialisation. Following the development of the Suez Canal in 1869, whichfacilitated the acquisition of the Red Sea coast of Assab by the Italian company
Rubatino, Eritrea, with its beautiful landscape and temperate climatic conditions,became an important colony for Italy.
The early 1900s was a period of
unprecedented growth for Eritrea.
The Italian Authorities invested in basic
infrastructure by building roads, railways, installing appropriate communication
facilities and expanding the harbour at Massawa and Assab, while at the same time
establishing some light industries, as well as developing agriculture as a source forsome of the raw material inputs for industry. It is believed that by the end of the
1930s, there were about 2000 industrial establishments involved in gold mining andthe production of a number of manufactured items, including processed food such asflour, pasta, canned meat, edible oil, bread, etc. Also being produced were hides
and skins and tanned leather for the Italian shoe industry, garments, fashion
accessories and consumer goods. With a capital investment of 2000 million Liras,
some of the industries were, in fact, medium to large-scale industries.
During the Second World War, the expansionist policy of the Italians in Eritrea wasdisrupted when the British defeated the Italians and the industrialisation processslowed down resulting in the closure of many industrial enterprises. Nevertheless,given its strategic location, the allied forces soon realised that Eritrea could be themain supply base for the Middle East and by 1943, industrial activities in the country
were slowly being revitalised.
In the 1950s, it was estimated that there were about 1,600 industrial enterprises
employing well over 26,400 Eritreans and 5,600 Europeans. Most of theseindustries were import-substitution industries producing basic consumer goods and alimited range of intermediate products for both the domestic market and externalmarkets in the Sudan, Yemen, Iran, Egypt, Cyprus, Djibouti and Ethiopia. The
Eritrean economy was then market-oriented with private sector-led industrial
development. However, the forced annexation of Eritrea by Ethiopia and the longyears of struggle to regain its independence, involving war with Ethiopia, devastatedthe Eritrean economy, in particular, the infrastructure and industrial base of thecountry. By the mid 1970’s, industrialisation, which was the main engine of growth
and an instrument for diversifying the Eritrean economy, was in a precarious
situation.
The internal problems and constraints on industrial development included, first andforemost, inadequate and inappropriate government policies and too much relianceon central planning and programming without the appropriate administrative
machinery. Although the Government was the lead agent for development, it was
not in an advantageous position to provide guidance and overall industrial
governance was completely skewed. Industries that once relied on domestic
1sources for their raw material needs were, by then, importing the bulk of their raw
material inputs. There was very little scope for forward and backward integration ofindustries and of industry with other sectors, more specifically, the agricultureindustry linkage was being narrowed down. As very little attempt was made to
develop the engineering industries, as well as capital goods and intermediate goods
industries, especially those producing spare parts and components, the country’s
capacity to choose technology for product design and production, as well as
maintenance know-how was limited.
The end of intense hostilities between Eritrea and Ethiopia was a welcome relief forindustry and business and heralded fresh hopes for recovery and reconstruction.
The Government of Eritrea has defined a number of policy guidelines and options
aimed at recovery, reconstruction and development. The main policy documents are
the Macro Policy of 1994, the National Economic Policy Framework and Programme
for 1998-2001 and the Transitional Economic Growth and Poverty Reduction
Strategy 2001-2002; Macro-Policy of the Government of the State of Eritrea 1994.

1.2

Macro-Policy of the Government of the State of Eritrea

The macro policy broadly addresses all the socio-economic sectors of the economy.
It underscores that optimal macro-economic policies had been drawn up to generate
and motivate private (domestic and external) initiatives and investments to achieve
the desired social and economic transformation of the country. With the premisesthat Eritrea is endowed with natural resources necessary for industry, it is well
positioned to access global and regional markets and possesses a highly motivated,industrious and disciplined people, who have not only a strong aspiration fordevelopment, but are also aware of what it takes to develop and have the necessarycommitment “to bring it about”.1 Macro-policy acknowledges that a lack of skilledhuman resource and a weak technological base are critical constraints which should
be addressed through, inter-alia, the creation of a modern, technologically advanced
and international competitive economy within the next two decades. As a prelude toits analysis of the industrial sector, the Macro Policy reiterates that around the mid
1970’s Eritrea had a thriving industrial sector, which accounted for approximately
40% of industrial output of Ethiopia.

1.3

National Economic Policy Framework and Programme 19982001, Macro Policy

The National Economic Policy recognises that Eritrea is faced with serious socioeconomic problems. The major constraints to growth and development are humanresource deficiency, inadequate physical infrastructure, weak institutional capacities
and capabilities for effective governance and economic management, inability toearn and mobilise adequate foreign exchange, limited domestic capacities and1

Macro-Policy of the Government of the State of Eritrea 19942

capabilities to develop, acquire, alter, modify and adapt new technologies to suitproduction patterns, demand trends and to utilise available domestic resources. The
inadequacy of information and knowledge resources is also a major problem.
The ultimate objective of the Macro Policy is to reduce external dependence, as wellas to create wealth and prosperity with social justice1, in particular, emphasis is on
economic growth and employment creation. The overall strategy is one of facilitating
a dynamic private sector and market economy, involving the privatisation of public
enterprises and increasing the role of the Government as a facilitator, while at thesame time establishing strategic alliances with the private sector.
The Macro Policy focuses on the following aspects: fiscal policy, including
expenditure policy and Government deficits, monetary policy; financial policy; trade
policy and an investment policy. A number of sectoral objectives and strategies aredefined, including strategies for agriculture and fisheries development,
manufacturing, energy and mining, tourism, infrastructure, etc.
In the area of industry, the country’s industrial strategy aims at creating anenvironment that would facilitate “The efficient expansion of manufacturing output inindustries where Eritrea has comparative advantages2”. Based on some preliminary
assessment, the Government holds the view that such industries include those
producing textile, garments and leather products, as well as others in agroprocessing, metal fabrication, plastic processing and in conversion and construction
materials.
Emphasis is given to the development of small and medium scale enterprises forwhich the Government will take major initiatives toward the establishment ofindustrial estates, business incubators and ensuring affordable access to credit,
training and simple business management skills.

1.4

Transitional Economic
Strategy 2001-2002

GrowthandPoverty

Reduction

The Government’s commitment to economic development and poverty reduction isenshrined in the constitution as illustrated in the following articles of the constitution:“The State shall work to bring about a balanced and sustainable development
throughout the country, and shall use all available means to enable all citizens toimprove their livelihood in a sustainable manner, through their participation (Article 8,para. 2).
Every citizen shall have a right of equal access to publicly funded social services.
The State shall endeavour within the limit of its resources, to make available to all
citizens health, education, cultural and other social services (Article 21, para. 1).
The State shall secure within available means, the social welfare of all citizens andparticularly those disadvantaged (Article 21, para. 2).”
1
2

National Economic Policy Framework and Programme 1998-2001.
Ibid.

3

As for back as in 1994, the Government pursued a poverty reduction strategy byencouraging the development of export-oriented industries in a competitiveenvironment, as well as raising the skills and well-being of the people throughinvestment in education, healthcare, nutrition, water and sanitation systems. In
addition, the Government invested heavily in rural infrastructure, agriculture,including livestock development and development of fisheries. These efforts werefrustrated with the border conflict with Ethiopia. The immediate objective of theTransitional Economic Growth and Poverty Reduction Strategy, therefore, focuseson addressing the immediate needs for emergency humanitarian assistance (brought
about mainly by war and drought), reconstruction and development of infrastructureand demobilising and reintegration of soldiers after the war. However, for the
medium term 2003-2005, the Government overarching objectives are “to attain rapid,
sustainable, widely shared economic growth and reduction in poverty in anenvironmentally sound manner led by a dynamic private sector1”.

1.5

Export development strategy

The challenges and opportunities remain the same as previously described above.
The main emphasis of the medium term strategy of relevance to industrial
development is the export strategy. The strategy aims at developing an export basethat will take into consideration the country’s abundant supply of relatively low-paidskilled and professional workers, while at the same time utilising production
technologies or technological processes that are internationally competitive.
The Government has adopted a crash programme for export take-off. The
programme is a pro-active and market driven strategy to diversify the economy andincrease export earnings from its current level of about US$ 12 million toapproximately US$ 200 million in the next few years.
Being a member of the Common Market for Eastern and Southern Africa(COMESA), which offers opportunities to trade with other countries of the sub-region,
Eritrean firms could easily break into some of the high-price export markets of the
sub-region. In addition, under the Lomé Convention and, in common with other
African countries, Eritrea, in principle, has preferential access to the European Union
market. The US Africa Growth and Opportunity Act 2000 (AGOA) also offers aunique opportunity for Eritrea to export garments to the USA without any quota
restriction and free of duty. The Government of Eritrea has been facilitating contact
between eligible firms and potential buyers, while at the same time providing various
incentives to industrial firms to help them modernise and expand.

1.5.1

Measures taken to facilitate export promotion

The Government has introduced a number of important reforms and measures tofacilitate export promotion. These include the following:•
1

Streamlining business license procedures;Transitional Economic Growth and Poverty Reduction Strategy – Government of the State of Eritrea.

4•A move towards a comprehensive legal financial framework;•

Land reform and enacting proclamations relating to export processing zones
and industrial estates;•

Rationalisation of import tariff and reduction of tariff rates;•

Streamlining custom administration;•

Expansion of transport and communication facilities, including rehabilitation of
the ports of Assab and Massawa;•

Eliminating import licenses and quantitative restriction in raw materials andproducts except those with health, security and employment implications.

The National Economic Policy Framework and Programme and the Transitional
Economic Growth and Poverty Reduction Strategy, per se, may not be quite
appropriate to address the challenges and opportunities of globalisation, sustainableindustrial development and competitiveness. The country’s capacity to attract
economic activities, including foreign direct investment in the industrial sector, as
well as its ability to retain such investment and develop support industries to sustain
the industrial development process are definite signs that it is ready to takeadvantage of global trends. In the global economy, Eritrea should be able to achieve
competitiveness in a few industrial products. To do so, however, the key
stakeholders of the economy should have a good understanding of the drivers ofcompetitiveness in the country and initiate measures to improve the competitivenessplatform through, inter alia, the definition of an integrated industrial policy framework.
(Example of relevant existing policies and instruments are illustrated in Annex III ofthis document).

5

2

Industrial policy: evolution and current approaches

2.1

Africa’s initial efforts

Industrial policy throughout the 1960s and early 1970s was based predominantly on
import substitution. Having acknowledged industrialisation to be the main engine of
growth and an instrument for diversifying their economies (which were excessively
dependent on the export of agricultural produce and minerals) and for raising
standards of living, African countries adopted import substitution industrial policies.
The import substitution policies offered a wide variety of measures to accelerateindustrial development, including price control, tariff and non-tariff protection. The
main flaw with such policies is that they encourage inefficiencies among industries,
which operate behind protectionist barriers. The State was the main agent forindustrial development with tremendous control over industrial production and, inmost cases, the main owner of industrial enterprises. The manufacturing sector
grew at an average rate of 7-8 per cent in Africa; the contribution of industry to GDP
also rose significantly from 14.5 per cent in 1960 to about 20.4 per cent in 1970 and25.8 per cent in 1977. Many African countries achieved rapid industrial expansion
and manufacturing value added increased significantly in real terms. The increased
prosperity in the industrial sector was accomplished by annual population growthrate of over 2.5 per cent and low agricultural productivity, which inevitably reduced
the continent’s self-sufficiency in food production and the volume of agricultural raw
materials for industry.
The import substitution policies in Africa, failed to produce the desired effects in thelong run. The concentration on light consumer goods industries as against the
production of intermediate and capital goods accelerated the continent’s reliance on
external sources for its capital goods, intermediate goods, spare parts andcomponents. Such policies also created a wide range of structural problems anddistorted Africa’s cost structures. The import substitution industries that were
established failed to generate the high level of employment envisaged because of
the technology and technological process selected. In addition, such policies failed
to integrate the agriculture sector and to establish significant linkages with othersectors.
A second type of industrialisation policy or strategy was adopted by some countries
in Africa in the early 1970s as a means towards structural change, namely, theexport oriented policy/strategy. Much emphasis was put on the processing ofdomestic resources, both agricultural and mineral, to satisfy domestic needs, as well
as for exports. For countries like Egypt and Morocco, which adopted export-oriented
policies, manufacturing exports increased considerably. In Egypt for example,
growth in manufacturing increased from 19.5 per cent in 1960 to 48 per cent in
1978 1 . The export promotion strategy encouraged the ploughing back of export
revenues into down stream processing activities, taking into consideration the
demand for such product and the ability to effectively utilise the country’s natural
1

World Bank, Arab Republic of Egypt.

7

resources and cheap labour.
Textiles, cement, agricultural machinery andimplements, iron and steel were some of the products being produced for exports. It
is true that most of the industries established were subsidiaries of the transnational
corporations, TNCs or partly owned by some big foreign firms. The export promotion
policy also had its draw back as most of the enterprises established very often
maximise the importation of factor inputs, thereby discouraging the local productionof basic factor inputs and suppressing the development and growth of indigenous
enterprises and technological capabilities. The basic characteristics of suchindustries were that they were capital intensive with sophisticated technology andsubject to economies of large-scale production. The financial implications wereenormous. Therefore, it is not surprising that direct foreign investment played andstill plays a significant role in building the continent export manufacturing capacities.
Because the export-oriented industries had to compete with other industries in
Europe and elsewhere, they were also protected at the initial stages of theirdevelopment with similar tariff and non tariff protection. However, there were othermajor problems and constraints that were not properly addressed by governments,
which accounted far the downturn in industrial production.
On the other hand, countries in Asia adopted similar policies, which revitalised theireconomies and set them on the path for sustained economic growth and industrial
development for over two decades. In common with the African countries, initialindustrial policies and strategies of the Asian countries were predominantly importsubstitution. The difference was that in Asia, import substitution was not limited toconsumer durables/goods but included light intermediate goods and capital goods.
The emphasis was also on labour-intensive industries. These countries came torealise that the opportunities for import substitution was limited because of the sizeof the domestic market and inadequacies of certain factor inputs – capital and raw
materials, in particular. Policy makers were quick to appreciate that accelerated
economic growth would depend on the establishment of export-oriented industries.
By pursuing a very vigorous export-oriented industrial strategy with a range of export
incentives, a country like Korea for example, was able to increase its export earningfrom US$ 31.8 million in 1960 to US$ 840 million in 1970. Exports consisted of
textiles, wood products, metals, transport and communication equipment, electrical
goods, machinery, footwear etc.
It is now generally agreed that the outstanding success of the Asian countries withthe export promotion strategy was mainly due to the strong political will of thegovernments to encourage and promote export processing industries and their
willingness to offer and sustain realistic incentives in order to achieve the desired
export performance and goals.

2.2

Policy efforts in the mid 1970s and 1980s

In the mid 1970s and 1980s, industrial policies could be defined as deliberate efforts
or proposed actions to alter the structure of industry or, as acknowledged by theWorld Bank, efforts to promote productivity based growth1. Many countries in Asia,
1

World Bank, The East Asian Miracle, 1993.

8

including Korea, Singapore, Indonesia and Malaysia pursued that approach. They
adopted a number of policy instruments, which enabled them to change production
patterns, as well as the composition of industrial products. The countries, however,had different perceptions of industrial policy. Singapore for example, specificallytargeted technological upgrading and building its capacity to attract foreign
investment. Nigeria, on the other hand, instituted measures aimed at protecting thelarge infrastructural and industrial projects that were mainly state owned.
The export successes that were achieved by the East Asian countries tended to overshadow the thinking of an industrial policy. The East African miracle was not based
purely on the existence of free markets and the withdrawal of government
interventions. As indicated earlier, the role of government in guiding and controllingindustrial development, as well as the governments’ strategic relations with theprivate sector significantly influenced the development of the industrial sector.
During the 1980s, there were those who believed that an industrial policy is simply apolicy towards industry and that the essential ingredients are the specific objectivesof the policy, the policy instruments employed and the policy environment. The
policy, therefore, was a framework for industrial development, highlighting a numberof factors that should be in place for firms to be efficient and be able to compete.

2.3

Policies in response to the real challenges of a globalised
economyThe traditional approaches to policy, whereby the government was perhaps the only
stakeholder defining policies, were gradually becoming inappropriate to both thegovernment and the private sector. Such policies were considered reactive andbureaucratic. By the early 1990s government and the private sector were beginning
to recognise that they cannot promote and develop the industrial sector individually.
The rise to prominence of private sector-led development in the developing countries
and the acknowledgment by government of its facilitating role and its responsibility
for governance and economic management has encouraged the promotion andestablishment of public private sector consultative mechanisms and public private
sector partnerships.
The growth in the importance of public private partnership will enable both thegovernment and the private sector to collectively address the complexities of
economic development, the implications of industrialisation in a global economy andmake policy decisions that will improve the enabling environment for sustainableindustrial development.
Industry level competitiveness policies emerged in the 1990s, with the main purposeof enabling firms to take advantage of vocational advantages and overcome
vocational disadvantages. Policy instruments are designed to improve productivity,
facilitate the introduction of new technologies, access to R & D, resources andknowledge, which will inevitably build the capacity of industrial firms to produce goodquality products at a price that will attract new customers. Such products should
also be able to penetrate and compete in new markets. The limitation of this9

approach is that it does not address macro conditions, including macro-economic
conditions, institutions and social structures. It has been observed by some
economists that some of the projects initiated under such policies were greatly
flawed, as macro level fundamentals were not recognised.
Other policy efforts focus on capacity building to transform the industrial basehighlighting technology and skills development to venture into and sustain the
production of intermediate and capital goods, as well as consumer durables.

2.3.1

Essence of an industrial policy

The above analysis on policy approaches illustrates how difficult it is to advance a
specific definition of industrial policy, which is acceptable to all countries or groups ofcountries in different regions of the world. However, by providing countries withvarious models or development tools, they can define their own policy approaches
that are appropriate to the existing realities at the national level, while addressing thecountries’ position in the global economy. The essential ingredient however, is thatthe policy should be defined in an interactive process, involving the private sector.
An industrial policy should be realistic, functional and other ministries within acountry should be able to buy into the various instruments so that the policy issustainable. In an increasing global economy, such policy should also aim at
creating an environment for both domestic and foreign investments to thrive and inwhich industrial enterprises are encouraged to innovate and improve production
processes and product, thereby offering opportunities for employment andempowering people, especially in the rural areas to be integrated in theindustrialisation process. An Industrial Policy should also ensure that a country’s
national and human resources are developed, utilised and managed efficiently. In
short, such policy should aim at ensuring industrial competitiveness.

10

3

Industrial structure and performance

3.1

An overview of total manufacturing

Although Eritrea is basically an agrarian economy, agriculture is not the largest
component of the GDP. The reason being that both commercial and peasantfarming have been distorted by a series of cyclical droughts and war with Ethiopia.
However, agriculture increased its share in the economy from 11.2 per cent in 1995
to approximately 16 per cent in 1999. On the other hand, manufacturing which wasapproximately 18 per cent in 1994 declined to about 15 per cent and 11.2 per cent in1996 and 1997 respectively. During the period 1997-1999 the average share ofmanufacturing to GDP was about 9.8 per cent. The distributive service sector, which
include trade, transport and communications accounted for newly a third of GDP in
1999
Figure 3.1: Real GDP Growth10%% change y-o-y% change y-o-y10%

GDP Growth at constant factor costs
8%

8%

6%

6%

4%

4%

2%

2%

0%

0%

-2%

-2%

-4%

-4%

-6%

-6%

-8%

-8%
-10%

-10%
1995

1996

1997

1998

Source: IMF, Bank of Eritrea

1999

2000*
*Preliminary

The poor performance of the agricultural sector has deprived the manufacturingsector from a reliable source for the supply and procurement of raw materials, aswell as capital, usually generated in the farming sector, for investment in non-farmenterprises. The domestic market for goods and services being produced in the
country is also very limited as a result of the low purchasing power of the farming
community and rural population. The domestic focus of the industrial sector is amajor cause for concern.
The Industrial sector comprises of large, medium and small enterprises producing
processed food, including beverages; leather and leather products; textiles andgarments; wood and wood products; basic metals; non metallic mineral products;
chemical products including plastics and rubber; fabricated metals, machinery andequipment, etc. The industrial sector is, however, relatively small, employing at thetime of the survey, approximately 25,000 employees. In 1996, it is estimated that
there were 37,000 employees in the industrial sector. Many of those employed in11industry in 1997-2000 were called up for war duties at the Ethiopia Eritrea border.
Hence, the reduction in employment at the time of the survey.
The following provides succinct information on total manufacturing trends between
1995 and 2001. The break in the graph signifies that industrial information gatheringand data processing were seriously obstructed due to the limited statistical capacity
and capabilities.

Figure 3.2: Production

Figure 3.3: Employment

Million Nakfa

Million Nakfa

NumberNumber

1 400

16 000

1 200

1 200

15 000

15 000

1 000

1 000

14 000

14 000

13 000

13 000800

800
12 000

12 000600

600
11 000

11 000400

400

10 000

10 000

200

200

1 400

9 000

9 000

Gross Output# of Employees
-

1995

1996

1997

1998

1999

2000

8 000

2001

1996

1997

1998

1999

2000

2001

Source: Ministry of Trade and Industry

Figure 3.4: International Trade Trends
Million Nakfa

Million Nakfa

Figure 3.5: Sub-Sector Production
Food, beverages and tobacco

3 500

Imports

Textiles and clothing

Exports

3 000

8 000
1995

Source: Ministry of Trade and Industry

3 500

16 000

3 000

2 500

2 500

2 000

2 000

1 500

1 500

1 000

1 000

500

500

-

-

Leather and footwear
Wood and paper
Chemical products, rubber and plastics
Non-metallic mineral products
Basic metal products
Machinery and equipment
Transport equipment

1995

1996

1997

1998

1999

Other manufacturing
0%
10%
20%
30%
Share in value of production, 2000

2000

50%

60%

Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

3.1.1

40%

Problems and constraints

The sector is also faced with a wide range of problems, including the lack of a clearly
defined industrial policy, weak institutional arrangements for effective industrial
governance. The structure of industry is also basically oriented to the production of
consumer goods and is overwhelmingly dependent on imported raw materials andother factor inputs. Given that there is a dearth of industries producing durables,
non-durables, intermediate and capital goods, there is limited scope for forward andbackward integration of industries and of industry in relation to other sectors, in12particular, the agriculture-industry linkage. The lack of engineering industries has
also restricted the country’s choice of technology be it for product design, production
and for maintenance.
Another major constraint to industrial development is the inadequacy of skilledindustrial capabilities, including managerial, technological, entrepreneurial andengineering capabilities. This shortage of industrial human resource was aggravatedby a number of factors, such as the historical development of labour laws, theeducation system, the country’ struggle to regain its independence, the current
system of education and training and the absence of a clearly defined policy forindustrial human resource development. Also, with very limited opportunities todevelop industrial skills and the low wages being paid to both skilled and unskilledworkers, there is little incentive to improve performance and productivity. The
existing technological capacities and corresponding capabilities are extremely weak.
The country relies heavily on external sources for technology. Unlike other countries
in Asia and Latin America, very little attempt has been made to develop thecapabilities to master, unpack and adapt such imported technologies in line with thecountry’s needs and resources.
Industrial financing is also a major constraint. The existing banking system is smalland serves very limited clients in the capital, Asmara, the main towns Assab and
Massawa and a few other towns. Commercial banks are not willing to take the risk
inherent in financing small enterprises. However, rural banking schemes are
emerging and other credit financing schemes for SMEs are being promoted.

3.2

Food processing industry

The food processing industry in Eritrea is the second largest industrial sub-sector interms of outputs and accounts for the highest level of employment.

Figure 3.6: Production
600

Figure 3.7: Employment

Million Nakfa

Million Nakfa

NumberNumber

600

5 000

500

500

4 500

4 500

400

400

4 000

4 000

300

300

3 500

3 500

200

200

3 000

3 000

100

2 500

100

2 500

Gross Output# of Employees

-

1995

1996

1997

5 000

1998

1999

2000

2 000

2001

2 000
1995

Source: Ministry of Trade and Industry

1996

1997

Source: Ministry of Trade and Industry

13

1998

1999

2000

2001

Given the strategic importance of the agricultural sector, the Government is currently
implementing an agricultural development strategy aimed at improving food security“raising factor-productivity through the efficient utilisation of capital, land and labour”
as well as facilitating the establishment of agro-industries1. The country produces awide variety of crops such as, sorghum, millet, barley, wheat, which are being
processed into flour and cereals, macaroni, spaghettis and similar products. Before
the war with Ethiopia, the country produced an average of 125,000 tonnes of cereal
annually. Other agricultural products being processed include linseeds, sesame
seeds, pulses, fruits and vegetables. The meat and meat product industry received
some boost during the war, producing processed meat for those at the war front, as
well as for domestic consumption. Fish processing is also gaining round. In the year
2000, the fish processing industry accounted for approximately 19.2 million Nakfa
worth of export earnings. Fish products were mainly exported to Europe.

Figure 3.8: Important Traded Products
SITC Code
034.1
048.3
034.0
036.0
098.4

046.1
061.1
421.0
022.2
071.1

2000
Exports
Fish, fresh, chilled or frozen
Macoroni, spaghetti and similar products
Fish, live
Crustacean, molluscs, and aqautic invertebrates,
whether in shell or not.
Sauces and preparations, mustard flour, vinegar, etc.
Total (including others)
Imports
Flour of wheat or meslin
Sugar, beet or cane, raw, insolid for, not containing
added flauouring or colouring matter
Fixed vegetable fats and oils, soft, crude, refined or
fractionated
Milk sweetened or concentrated
Cofee, not roasted
Total (including others)

Figure 3.9: International Trade Trends

Million Nakfa
800

15.9
7.9
2.7
0.2

Million Nakfa

Million Nakfa

800

Imports
700

700

Exports

600

600

0.2
27.8

500

500

147.7
115.8

400

400

111.1

300

300

200

200

100

100

66.0
56.1
677.1

-

1995
Source: Ministry of Trade and Industry

1996

1997

1998

1999

2000

Source: Ministry of Trade and Industry

However, Eritrea continues to rely heavily on food imports. In the year 2000 for
example, approximately 677 million Nakfa worth of food was imported.

1

Natural Economic Policy Framework and Programme, 1998 – 2002, Transitional Economic Growth and Poverty
Reduction Strategy 2000 - 2002.

14

Figure 3.10: Important Trading Partners

Figure 3.11: Commodity Production

Netherlands

Meat and meat products

Sudan

Vegetable and animal oils and fats
Dairy products

Germany
Exports

UK

Grain mill products
Bakery products

Italy
Cocoa; chocolate and sugar confect
UAE

Macaroni; noodles; similar farinaceous prod.

Italy

Wines
Imports

BrazilBrewery

TurkeySoft drinks and mineral waters

Netherlands

Tobacco products

0%

5%

10%

15%
20%
25%
% of total, 2000

30%

35%

0%
5% 10% 15%
Share in value of production, 2000

40%

Source: Ministry of Trade and Industry

20%

25%

30%

Source: Ministry of Trade and Industry

Beverages, including soft drinks, beer and mineral water are also being produced
and represent a significant percentage of commodity production in this sub-sector.

3.3

Textile and clothing industry

Cotton is grown in plantations, as well as by small holders. The main producing
areas are along the western lowlands and the southeastern lowlands of the country.
The Government had an interest in textile production by owning factories in the early
1990s, some of which have since been privatised. With the expansion of cotton
production, the existing textile industries are able to procure a considerable amountof cotton and other raw material inputs locally. The clothing enterprises produce
mainly sweaters, garments, underwear, socks, etc. With the exception of the expublic enterprises, most of the enterprises in this sub-sector are small-scale
enterprises. Production has remained relatively stable in recent years.

Figure 3.12: Production
100

Figure 3.13: Commodity Production

Million Nakfa

Million Nakfa

100
Finishing of Textiles

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

Cordage, rope, twine
and netting

Other textiles

Knitted and crocheted
fabrics and articles

Wearing apparel,
except fur apparel

10

Gross Output

-

1995

1996

1997

1998

1999

2000

0%
10%
20%
30%
Share in value of production, 2000

2001

Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

15

40%

50%

60%

Employment in this sector fell drastically between 1997-2000, as many employees
were recruited for war duties. Even with a reduced number of employees, the levelof production was impressive.

Figure 3.14: Employment
4 500

NumberNumber

4 500

4 300

4 300

4 100

4 100

3 900

3 900

3 700

3 700

3 500

3 500

3 300

3 300

3 100

3 100

2 900

2 900

2 700

2 700

# of Employees

2 500

2 500
1995

1996

1997

1998

1999

2000

2001

Source: Ministry of Trade and Industry

A major constraint to the development of the textile and clothing industrial sub-sector
is the technology being used. Plant and equipment are antiquated and with the lackof spare parts frequent breakdowns are not unusual. Although the textile industrial
sub-sector was badly neglected during the period under Ethiopian rule, the skill baseand know-how are still there and can be revitalised. Eritrea is listed as one of thebeneficiary countries under the USA African Growth and Opportunities Act 2000
(AGOA), which enable Eritrea to export garments to the USA free of quota restriction
up to the year 2008. The Eritrea crash programme for an export take-off has also
accorded priority to, among others, the textile industry. The country, however,continues to import large quantities of textile and clothing mainly from Kenya, United
Arab Emirates, Pakistan and Italy.

Figure 3.15: Important Trading Partners

Figure 3.16: International Trade Trends
400

SwedenMillion Nakfa

Million Nakfa

400

Imports
Sudan

350

Belgium
Exports

Yemen

350

Exports

300

300

250

250

200

200

150

150

100

100

50

50

Germany
Kenya
UAE
Imports

Pakistan
Saudi Arabia
Italy

0%

10%

20%

30%
40%
50%
% of total, 2000

60%

70%

80%

1995

Source: Ministry of Trade and Industry

1996

1997

Source: Ministry of Trade and Industry

16

1998

1999

2000

3.4

Leather and footwear industry

Eritrea is one of a few countries in Africa with a tradition and skill base in leather andleather goods production. The industry was further developed by the Italians in the
1940s who transferred knowledge and skills, as well as provided markets for leather
products and footwear of Eritrean origin. Although production diminished during theboarder conflict with Ethiopia, the sub-sector is slowly being revitalised and accounts
for approximately 10 per cent of those employed in the manufacturing sector

Figure 3.17: Production
160

Figure 3.18: Employment

Million Nakfa

Million Nakfa

1 800

140

NumberNumber

1 800

1 700

1 700

1 600

1 600

1 500

1 500

1 400

1 400

1 300

1 300

1 200

1 200

1 100

1 100

1 000

1 000

120
100
80
60
40
20

900

Gross Output-

900# of Employees

800

800
1995

1996

1997

1998

1999

2000

1995

2001

Source: Ministry of Trade and Industry

1996

1997

1998

1999

2000

2001

Source: Ministry of Trade and Industry

The leather and footwear industrial enterprises are faced with a number of
constraints such as the lack of skilled technicians and designers, lack oftechnological and R & D capabilities. Nevertheless, the quality of goods produced iscomparable to those produced by some of the developed countries. Eritrea exports
not only sheep, lamb and kid skin leather, but also whole bovine skin leather,footwear and other leather products.
Figure 3.19: Important Traded Products
SITC Code
611.5
611.0
611.6
611.3
851.0

851.0
851.9
831.0
612.1

2000
Exports
Sheep or lamb skin leather
Leather (tunned skins and hides)
Goat or kid skin leather
Whole bovine skin leather
Footwear
Total (including others)
Imports
FootwearParts of footwear
Traveling bags, hand bags, samsonite and the like
Articles of leather or of composition leater, of a kindused in machinery or mechanical applicances or for
Total (including others)

Figure 3.20: Commodity Production

Million Nakfa
5.9
5.7
3.7
2.4
0.9
18.6

Tanning and dressingof Leather

Luggage, bags
saddlery andharnesses

20.1
7.2
4.5
0.1

31.8

Footwear0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Share in value of production, 2000
Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

17

The country, however, continues to import footwear and leather goods mainly from
Italy, the United Arab Emirates, Saudi Arabia and China.
Figure 3.21: Important Trading Partners

Figure 3.22: International Trade Trends
120

India

Million Nakfa

Million Nakfa

120

Imports
Italy

Exports
100

100

80

80

60

60

40

40

20

20

Malta
Exports

Sudan
China
UAE
Italy

Imports

Saudi Arabia
China
Yemen
0%

5%

10%

15%
20%
25%
% of total, 2000

30%

35%

40%

1995

Source: Ministry of Trade and Industry

3.5

-

-

45%

1996

1997

1998

1999

2000

Source: Ministry of Trade and Industry

Wood and paper industry

Eritrea has experienced cyclical droughts in recent years, which have devastated thecountry’s forest resources. The indiscriminate use of forest resources to provide
wood and charcoal energy for rural and urban households has also contributed to
the widespread depletion of forest resources. This inevitably led to the shortage ofwood for the wood industry.
There are about eight or more small enterprises engaged in furniture production, as
well as medium-large public enterprises, some of which are yet to be privatised.
Although employment in this sub-sector was drastically reduced in 1994, recent
improvements in some of the production lines, as well as some new investments
have resulted in increased employment.
Figure 3.23: Production
50

Figure 3.24: Employment

Million Nakfa

Million Nakfa

540

50

45

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

NumberNumber

520

520

500

500

480

480

460

460

440

440

420

420
5

5

Gross Output-# of Employees

1996

1997

1998

1999

2000

400

400

1995

540

1995

2001

Source: Ministry of Trade and Industry

1996

1997

Source: Ministry of Trade and Industry

18

1998

1999

2000

2001

With the increase in production brought about mainly by the expansion in printing,there is some potential for exports to neighbouring countries.
Figure 3.25: Commodity Production

Figure 3.26: International Trade Trends
180

Other products ofwood, cork, straw andplait. mat

Corrugated paper,
paperboard,containers

Million Nakfa

160

140

140

120

120

100

100

80

80

60

60

40

70%

80%

40

Imports
Exports

20
60%

20
-

-

90%

1995

Source: Ministry of Trade and Industry

180

160

Printing

0%
10% 20% 30% 40% 50%
Share in value of production, 2000

Million Nakfa

1996

1997

1998

1999

2000

Source: Ministry of Trade and Industry

Eritrea however continues to import large quantities of plywood, veneered panels
and similar laminated wood, paper, paperboard, etc. During the year 2000,
approximately 131 million Nakfa worth of products were imported of which 50 per
cent was spent on the importation of plywood, panels, laminated wood and otherforms of wood.

Figure 3.27: Important Traded Products
SITC Code
635.9
892.1
892.2

2000
Exports
Manuffactured articles of wood, n.e.s.
Books, phamplets, maps & globs, printed(exc.advertising mat)
Newspapers, journals and periodicals

Figure 3.28: Important Trading Partners

Million Nakfa

Sudan
USA

2.8
0.7

Germany

0.1

Exports

UK

634.4
247.0
641.0
642.1
641.5

Total (including others)
Imports
Other plywood venered panels and similar laminatedwood
Wood in the rough or roughly squared
Paper and paper board in rolls/sheets (for printing…)
Paper and paperboard for matchboxes, cartones,
cases, n.e.s
Filtering paper, cigarette paper, uncoated, n.e.s.
Total (including others)

Canada

3.7
30.9

UAE

30.5
15.5

Austria
ImportsUK

6.8

Saudi Arabia

5.4
130.6

Sweden0%

Source: Ministry of Trade and Industry

10%

20%

30%
40%
50%
% of total, 2000

60%

70%

80%

90%

Source: Ministry of Trade and Industry

Most of the country’s exports in this sub-sector were destined for Sudan and theUSA. The imported items were mainly sourced from the United Arab Emirates,
Australia, the UK and Saudi Arabia.

19

3.6

Chemical industry

The chemical industrial sub-sector produces a wide variety of products aimed atsatisfying basic needs including pharmaceuticals and medical products, toiletries,
salts and active ingredients for production of other chemical goods. The country is
endowed with potash and phosphate rocks, which could be used to produce
fertilisers. The shortage of foreign exchange is one of the major constraints todeveloping this scientific and technology intensive industrial sub-sector. Production
has, however, increased by some 48 per cent since 1994, although the sub-sector
experienced some decline in production 1995-1997 as well as in 1999.

Figure 3.29: Production

Figure 3.30: Employment

Million Nakfa

Million Nakfa

NumberNumber

120

1 500

100

100

1 300

1 300

80

80

1 100

1 100

60

60

900

900

40

40

700

700

20

500

120

20

500

Gross Output# of Employees
-

1995

1996

1997

1 500

1998

1999

2000

300

300

2001

1995

Source: Ministry of Trade and Industry

1996

1997

1998

1999

2000

2001

Source: Ministry of Trade and Industry

The chemical product sub-sector is the third largest employer of industrial labour.
There is a shortage of skilled workers, technicians, technologists, scientists andchemical engineers. The methods of production are antiquated and the lack of spareparts and difficulty in procuring some of the raw material inputs are also constraining
the development of this sub-sector. Nevertheless, the country has been able tosustain the same export markets for some of its commodities.
Figure 3.31: Commodity Production

Figure 3.32: Important Traded Products
SITC Code

Basic chemical except fertilizers

541.0

Paints, varnishes and similar coatings,
printing inks

553.5
629.9

Soap, detergents, cleaning, polishing, toilet
preparations

554.1

Retreading - rubber tyres and tubes

625.0
Other rubber products

541.0
Plastic products

625.0
629.9

Other rubber products

334.5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Share in value of production, 2000

523.0

Source: Ministry of Trade and Industry

2000
Million Nakfa
Exports
Medical and pharmacetical products, other than
5.3
medicaments
Shaving, bath, toilet preparations; perfumes, cosmotics
0.4
Articles of hardened rubber /of unhardened rubber,
n.e.s.
Soap, organic surface-active products andpreparations for use as soap, in the form of bars,
cakes, moulded pieces or shapes
Rubber tyres and inner tubes for wheel of all kinds
Total (including others)
Imports
Medical and pharmacetical products, other than
medicaments
Rubber tyres and inner tubes for wheel of all kinds
Articles of hardened rubber /of unhardened rubber,
n.e.s.
Lubricating petroleum & oils from bituminous minerals
Metal salts and peroxysalts, of inorganic acids
Total (including others)

Source: Ministry of Trade and Industry

20

0.4
0.2

0.1
6.4
102.6
55.9
53.7
26.0
16.9
424.1

The country continues to rely heavily on imported chemical products,
pharmaceuticals, other medical products, tires for motor vehicles, petroleum
products and inorganic salts. The main trading partners are Australia, Sudan,
Vietnam and Pakistan for exports and the United Arab Emirates, Saudi Arabia andthe Netherlands for imports.

Figure 3.33: International Trade Trends
500

Million Nakfa

Million Nakfa

Figure 3.34: Important Trading Partners

500

Australia

450

Sudan

400

400

Viet Nam

350

350

Pakistan300

300South Africa

250

250

UAE

200

200

Saudi Arabia

150

150

100

100

Imports450

Exports

50

Germany
USA

1995

1996

1997

1998

1999

0%

2000

Source: Ministry of Trade and Industry

3.7

Imports

Netherlands

50-

Exports

5%

10%

15%
20%
% of total, 2000

25%

30%

35%

Source: Ministry of Trade and Industry

Non-metallic mineral industry

Eritrea is endowed with non-metallic minerals such as granite, marble, slate,limestone potash and silica. The marble industrial enterprises, as well as enterprises
manufacturing cement, ceramic products and glass are the most promising as over
80 per cent of the raw materials are produced locally. The cement industry produces
mainly for the domestic market. However, a small percentage of its output isexported to neighbouring Sudan. In 1996-1997 total production in the sub-sector
increased by over 300 per cent but declined quite significantly in 1998-1999. The
level of production has since remained constant.
Figure 3.35: Production
140

Figure 3.36: Commodity Production

Million Nakfa

Million Nakfa

140

120

120

100

100

80

80

60

60

40

40

20

20

Structural nonrefractory clay andceramic

Cement, lime andplaster

Cutting, shaping andfinishing of stone
Gross Output
-

1995

1996

1997

1998

1999

2000

0%

2001

Source: Ministry of Trade and Industry

10%
20%
30%
Share in value of production, 2000

Source: Ministry of Trade and Industry

21

40%

50%

60%

The potential for growth in this sub-sector is closely linked to the development in thebuilding and construction industry. The national reconstruction programme ofinfrastructure devastated by war and the rehabilitation of industrial enterprises andother physical infrastructures would require considerable quantities of cement,
marble, glass, etc., some of which could be produced by domestic industries.

Figure 3.37: Employment
2 900

Figure 3.38: Important Traded Products

NumberNumber

SITC Code

2 900

661.2
2 400

2 400

1 900

1 900

661.2
1 400

1 400

662.4
812.2

900

900

665.9
664.1

# of Employees
400

400
1995

1996

1997

1998

1999

2000

2000
Exports
Portland cement, aluminous cement, slag cement,
spersulphate cement

Million Nakfa
0.1

Total (including others)
Imports
Portland cement, aluminous cement, slag cement,
spersulphate cement
Non-referactory ceramic bricks, tiles, pipes and similar
products
Ceramic skins, washbasin, bathes, gutter tubes & thelikeArticles made of glass, n.e.s.
Glass in the mass, in balls, rods, or tubes(unwanced)waste and serap of glass
Total (including others)

0.1
68.6
12.8
8.2
4.8
4.0
107.3

2001

Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

Cement still represents a large percentage of imports in this sub-sector. In the year
2000 it was estimated that approximately 64 million Nakfa worth of cement and othercement based products were imported.

Figure 3.39: International Trade Trends
Million Nakfa

Million Nakfa

Figure 3.40: Important Trading Partners

180

Sudan

160

160

Saudi Arabia

140

140

UAE

120

120

100

100

80

80

180

Exports

Indonesia
Saudi Arabia

60

60

40

40

Imports

UAE
Imports
Exports

20

Italy
20
South Korea
-

1995

1996

1997

1998

1999

0%

2000

Source: Ministry of Trade and Industry

20%

Source: Ministry of Trade and Industry

22

40%
60%
% of total, 2000

80%

100%

120%

The main trading partners are Indonesia, Saudi Arabia and the United Arabic
Emirates for imports, which also included various types of ceramic products, glass,
etc.

3.8

Basic metal product industry

Although Eritrea has known deposits of metallic minerals such as iron-ore, gold,
silver, copper, nickel, etc., the processing of these basic metals is limited. The ironand steel industry is not fully developed. The existing iron and steel works andmetal-working units produce mainly iron and steel bars, wires, springs, rails, beds,
chains, billets and cutlery.

Figure 3.41: Production
800

Figure 3.42: Commodity Production

Million Nakfa

Million Nakfa

800
Basic iron and steel

Gross Output
700

700

600

600

500

500

400

400

300

300

200

200

100

100

Structural metal
products

Tanks, reservoirs andcontainers of metal
Metal forging,pressing, stamping,roll-forming
Other fabricated metal
products n.e.c.

-

1995

1996

1997

1998

1999

2000

0%
20%
40%
60%
Share in value of production, 2000

2001

Source: Ministry of Trade and Industry

80%

100%

120%

Source: Ministry of Trade and Industry

Production in the sector has been erratic, from an extremely low base in the mid
1990s to a peak production year of 2000. The sub-sector experienced a drastic fallin 2001. The same trend was experienced with employment in the sub-sector.
Figure 3.43: Employment
750

Figure 3.44: International Trade Trends

NumberNumber

750

400

Million Nakfa

Million Nakfa

400

Imports
700

700

650

650

600

600

550

550

500

500

450

450

350

400
1995

1996

1997

1998

1999

2000

300

250

250

200

200

150

150

100

100

50

50
-

-

2001

1995

Source: Ministry of Trade and Industry

1996

1997

Source: Ministry of Trade and Industry

23

350

300

# of Employees
400

Exports

1998

1999

2000

The country imports a wide variety of metal products, including iron and steel bars,
rods, angles, aluminium machine tools and household items. These were mainly
bought from Saudi Arabia, the United Arab Emirates, the UK and Italy.

Figure 3.45: Important Traded Products
SITC Code

Figure 3.46: Important Trading Partners

676.0

2000
Million Nakfa
Exports
Iron and steel bars, rods, angles, shapes and sections
0.2

697.4
696.0

House hold articles n.e.s of iron and steel
Cutlery

0.1
0.1

676.0

Total (including others)
Imports
Iron and steel bars, rods, angles, shapes and sections

66.4

Saudi Arabia

22.8

UAE

679.0
695.0
697.4
692.0

Yemen
Sudan

Exports

0.4

Tubes, pipes and hollow profiles, and tube or pipe
fittings of iron or steel
Tools for use in the hand or in machines
House hold articles n.e.s of iron and steel
Metal constainers
Total (including others)

18.9
14.9
9.1
188.9

Imports

UK
Italy
China
0%

Source: Ministry of Trade and Industry

10%

20%

30%
40%
% of total, 2000

50%

60%

70%

Source: Ministry of Trade and Industry

The imported products are used by some of the existing industries to produce certain
goods, including household goods for both domestic consumption and export.
Yemen and Sudan are the main destination for the locally produced householdarticles.

3.9

Fabricated metals, machinery and equipment industry

This sub-sector comprises a good number of small-scale enterprises producing
fabricated metals for domestic use. Production has increased quite significantly
since 1999.

Figure 3.47: Production
16

Figure 3.48: Commodity Production

Million Nakfa

Million Nakfa

16

14

14

12

12

10

10

8

8

6

6

4

4

Bearings, gears, gearing and driving elements

Other general purpose machinery

Accumulators, primary cells, primary batteries

Medical and surgical equipment, orthopedic
appliances

Instruments and appliance for measuring,
testing, checking and navigating2

2
Gross Output

-

1995

1996

1997

1998

1999

2000

0% 10 20 30 40 50 60 70 80 90 100

2001

Share in value of production, 2000

Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

24

The number of employees in the sub-sector, however, declined during the same
period as most of the workers were recruited in the army to fight at the border with
Ethiopia.
As the sub-sector is not well developed, machinery and equipment are imported foruse by other industry and services.
The main trading partners are Italy, Saudi Arabia, the United Arab Emirates andBelgium for imports and Sudan, Switzerland and Sweden for exports.
Figure 3.49: Employment
220

Figure 3.50: Important Traded Products

NumberNumber220

SITC Code2000

Million Nakfa

Exports
200

200

180

180

160

160

140

140

120

723.0
764.0
752.0
727.0
778.1

120

Total (including others)
Imports
Civil engineering and construction plant & equipment
Telecommunications equipment & parts thereof, n.e.s
Data processing machines (computers and other adp.)

112.5
45.6
43.2

Food processing machinery and parts thereofBatteries and electric accumulators and parts thereof
Total (including others)

32.4
30.0
537.4

0.1

# of Employees
100

100
1995

1996

1997

1998

1999

2000

2001

Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

Figure 3.51: Important Trading Partners

Figure 3.52: International Trade Trends

Sudan

800

Million Nakfa

Million Nakfa

800

Imports

Switzerland

700

700

Exports

SwedenExports

NorwayItaly
Saudi Arabia

600

600

500

500

400

400

300

300

200

200

100

100

Imports

UAE
Belgium
UK
0%

10%

20%

30%
40%
50%
% of total, 2000

60%

70%

-

80%

1995

Source: Ministry of Trade and Industry

1996

1997

1998

1999

2000

Source: Ministry of Trade and Industry

3.10 Transport equipment industry
The industrial operators in this sub-sector produce mainly spare parts and otheritems for after sales services. Quite apart from the significant drop in production in
1996, this sub-sector has registered continuous increases in production andemployment with the latter showing an increase of over 180 per cent since 1999.

25

Figure 3.53: Production
9

Figure 3.54: Employment

Million Nakfa

Million Nakfa

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

300

NumberNumber

250

250

200

200

150

150

100

100

50
1

# of Employees

-

1995

1996

50

1

Gross Output

1997

1998

1999

2000

300

-

2001

1995

Source: Ministry of Trade and Industry

1996

1997

1998

1999

2000

2001

Source: Ministry of Trade and Industry

The country relies heavily on imported transport equipment, spare parts, etc. In theearly years of its independence, large quantities of transport equipment were
imported. Since 1995, however, imports have been declining gradually. It is
recorded that in the year 2000, only 270 million Nakfa worth of transport equipment
were imported compared to nearly 500 million worth in 1995.
Figure 3.55: International Trade Trends
600

Million Nakfa

Million Nakfa

Figure 3.56: Important Traded Products

600

SITC Code

Imports

2000

Million Nakfa

Exports

Exports
500

500

400

400

300

300

200

200

100

100

-

782.1
781.2
784.0
786.0
782.2

Total (including others)
Imports
Moter vehicles for transport of goods
Motor vehicles for transport of persons (small familycar)
Spare parts and accessories of motor vehicles
Trailers and semi-trailers
Special purpose motor vehicles (ambulance, fireengine…)
Total (including others)

70.5
60.6
47.6
31.4
16.4
269.9

1995

1996

1997

1998

1999

2000

Source: Ministry of Trade and Industry

Source: Ministry of Trade and Industry

The sources of imports were Italy, Saudi Arabia, the United Arab Emirates andJapan.

26

Figure 3.57: Important Trading Partners

Exports

Italy
Saudi Arabia
Imports

UAE
Japan
UK
0%

5%

10%

15%
20%
% of total, 2000

25%

30%

35%

Source: Ministry of Trade and Industry

3.11 Export orientated development
Fully conscious of the precarious state of industry in Eritrea and the need to reorient
the country’s strategy, policies and projects to ensure sustainable industrial
development, the Government has adopted a two-pronged strategy to develop its
industrial base. The first being the development of labour-intensive manufactured
exports based on the country’s abundant supply of low paid skilled and professional
workers. The second thrust of the strategy is the development of the natural
resource base to ensure a sustainable supply of raw material inputs for the exportoriented industry, in particular, the textile and garment industry, leather and footwear
industries, as well as the food processing and other industries in which the country
has a comparative advantage.
The Eritrean Government has introduced some measures to ensure success inexport-oriented industrial development.
Some of the important reforms andmeasures introduced include:•

Opening up all sectors of the economy to private investment, both domestic
and foreign, including through build, operate and transfer arrangements;•

Privatising all public enterprises. (It should be noted that the Government has
privatised all but 4 public enterprises). The remaining ones to be privatised
are now being operated on a commercial basis with strict adherence tomarket discipline);•

Developing a sound financial system which will include improved capabilities
in project appraisal and credit analysis;•

Simplifying the tax structure and reducing the number of income tax rates andcorporate tax rates, as well as improving tax and customs administration
procedures and management;•

Rehabilitating and developing the physical infrastructure of the country,
including the ports of Massawa and Assab, water, electricity, transport and27telecommunication facilities to attract private investment, more specificallyforeign private investment;•

Using monetary policy to attract investments, stabilise prices and containinflation, including the adoption of a managed float exchange rate system,
which allows banks and foreign exchange bureaux to set their own existing
rates;•

Adopting an investment policy that encourages foreign investment in all
sectors, without restriction on ownership, capital structure, access to utilities
and other factor inputs and exchange controls.

Although these reforms and measures are laudable, the increasing trends of a global
economy have created new challenges for governments and industrial enterprises
not only in the developed countries but also in the developing countries, including
Eritrea. First and foremost, the globalisation of economic activities with emphasis ona private sector driven economy, competitiveness, environmental management andquality production makes it imperative for governments and industrial enterprises tochange the way they operate. The development of global finance and financial
markets, as well as information technology offers unique opportunities for industries
to grow and compete. However, within a particular country, certain prerequisites
should be in place before industrial firms can grow, be able to compete and sustain
the industrial production process.

28

4Eritrea’s competitive platform

4.1

Analysing competitivenessThe national environment in which industries operate plays a key role in theircompetitive success. Competitive success, however, depends on whether theindustries have a competitive advantage in production and productivity growth, interms of costs, quality, prices and efficiency.
There are various approaches to competitiveness. In the United States for example,
the Competitiveness Policy Council defines competitiveness as “the ability to
produce goods and services that meet the test of international markets while ourcitizens can earn a standard of living that is both rising and sustainable over the longrun”.
This is a rather restrictive concept of competitiveness, although it
acknowledges that it is firms that compete and not countries. Industrial firms should
operate in a dynamic environment, which encourages productivity improvements andinnovation and firms should continuously strive to improve their performances.
On the other hand, the World Economic Forum (WEF), which constructs acompetitive index of about 60 countries, argues that countries that are competitive
are mainly those “that have the underlying conditions to achieve rapid economic
growth for a number of years, taking into account their starting income”. The
argument here is that competitiveness and economic growth are complementary.
Some economists have questioned the accuracy and relevance of the competitive
index on the grounds that the competitiveness indices have weak theoretical andempirical foundations and of little relevance to policy analysis.
The International Institute of Management (IMD) that publishes the World
Competitiveness Yearbook argues that economic growth per se cannot determine acountry’s competitiveness. Other factors outlined below should also be taken into
consideration:•

Domestic economic strength;•

Degree of internationalisation;•

Quality of government;•

Financial and macro-economic stability;•

Infrastructural development;•

Managerial and leadership capabilities;•

Scientific and technological capabilities; and•Human resources – quality of human skills.

Those who argue that it is firms that compete have also stressed that at the firmlevel, there are certain factors that determine competitiveness such as the availabilityof specialised labour, technology and infrastructure, the productivity of the work29

force, the efficient utilisation of raw materials, the existence of other competitors,
demand factors, the existence of a network of supporting industries, as well as otherfavourable conditions.

4.2

Drivers of competitivenessMichael Porter in “The Competitive Advantage of Nations” (1990) 1 provides aframework to determine the drivers of industrial competitiveness. This framework,
succinctly described as the “National Diamond” refers to determinants, which
individually or collectively can create a competitive platform for industry to develop
and become internationally competitive. The “National Diamond” illustrates four
broad attributes that could influence the environment in which industries compete.
These are:Factor conditions: Basic factor endowments that are prerequisites to efficient andcompetitive production, such as human resources, physical resources, infrastructure,
capital resources and knowledge resources;
Demand conditions: The nature of domestic demand for the products of industries,
as well as for services. Of particular relevance are the structure of demand, the size,
the rate of growth of demand, specific needs, including Government demand andexports opportunities;
Related and supporting industries: This refers to the presence within a country ofcompetitive industries, namely, supplier industries or related industries. Other
support services are also essential such as financial services, the provision ofmarket information and technology information that could transform production;
Firm strategy, structure and rivalry: This determinant actually refers to thecondition in a country that governs how companies are organised and managed,
including corporate governance and the nature of domestic rivalry.
A fifth determinant is Government: The Government’s interface with industry –intervention or the absence of intervention. Being the main agent of development,
Government can influence all of the above-mentioned determinants through its
policies, subsidies, its demand for goods and services and the establishment of
support institutions.

1

Michael Porter, 1990, The Competitive Advantage of Nations, New York, Free Press.

30Figure 4.1: Porter’s Competitive Platform

Government
Firm Strategy,
Structure andRivalry

DemandConditions

FactorConditions

Related andSupporting
Industries

The different elements of Porter’s Diamond are interrelated and mutually dependent.
For example, if there is a high demand for a particular product either at home or inneighbouring countries, it is highly likely that the Government will take decisions thatwill generate the necessary factor creating investments. Where there are a numberof dynamic rival industries in a particular sub-sector, the consumers are likely tohave more choice and better quality, thereby, improving the level of sophistication ofhome demand.
It is recognised that competitive advantage based on one or two of these
determinants is possible in resource-based industries utilising less sophisticatedtechnologies and skills. However, one cannot rule out competition from strong global
industries. On the other hand, Porter argues that when there is an inter play ofadvantages in several determinants, industrial enterprises are likely to yield benefits
and can ward of competition or rivalry from foreign enterprises.

4.3

Other drivers of competitiveness

Variations of Porter’s analysis have emerged since the early 1990s. Some of theresearchers involved in the analysis of the Competitive Advantage of Nations haveadvanced other variables worth considering when assessing competitiveness in agiven country. According to Michael Enright, Porter’s analysis provides a frameworkthat has proven useful in analysing competitiveness in the developed countries but
not quite appropriate for the developing countries because of the nature, scope andlevel of development of these countries. For Porter’s analysis to be useful, otherfactors or drivers of competitiveness should be added: Enright therefore suggest thefollowing sets of drivers:
Supranational level drivers: These are elements that are beyond the scope orcontrol of a particular country and are influenced mainly by multilateral organisations,multilateral cooperation, international finance flows, foreign governments and trade31

blocks. In assessing industrial competitiveness “the question is whether the
economy in question is favourably or unfavourably positioned with respect torelevant competitors in the supranational drivers that affect the industry underinvestigation1”. The degree to which a country can work closely with internationalorganisations to secure knowledge, best practice, policy advice and finance could
influence a country’s ability to compete. Eritrea’s close ties with Italy is a strong
advantage to develop its leather, leather products and footwear industries, areas inwhich the Italians have a global competitive edge. As a member of the Common
Market of Eastern and Southern Africa (COMESA) the country can also enjoy certain
advantages, which could contribute to the competitive performance of certain
industries.
Macro level drivers2: These drivers operate at the national level cutting acrossindustry and other sectors. Basically, they are the macro-economic conditions,
government policy instruments, policy environment and institutions that should be inplace if a country is to succeed in developing its economic potential and achieve
competitiveness. The existing macro-economic conditions in a country are crucial as
they can impact on competitiveness. The aggregate demand, inflation, interest
rates, exchange rates, as well as the existence or non existence of an industrial
policy could also have important impacts on the competitiveness of industries.
Macro-institutions, in particular, those relating to education and training, R & D andgovernance are also of equal relevance and could impact positively on thecompetitiveness of industries.
Micro/industry level drivers3: These involve factors that are specific to industry,
namely competition, cooperation, strategic grouping, the existence of micro-level
policies and institution of relevance to the industry. Where there is competition
among enterprises of a particular industry, there is a desire to improve on production
methods and product quality. Such competition could eliminate inefficiencies andencourage the development of lead firm. Competition could also be disastrous if
there is no room for cooperation, especially in terms of sensitive activities such as
market intelligence, export promotion, research, training and the provision of certain
kinds of infrastructure.
Meso/cluster level drivers4: These drivers are necessary for industries in the samevertical production chain. They include various inputs that are available to thedomestic enterprises, the nature of demand, as well as policies and institutions at
meso or cluster level. According to Enright, inputs such as land, labour, capital,
infrastructure, knowledge, technologies, raw materials and support services canprovide a source of advantage to enterprises and increase their chances of
becoming competitive.

1

Public Private Partnership for Economic Development and Competitiveness with special Reference to theAfrican Experience, UNIDO, 2000.
2
Public Private Partnership for Economic Development and Competitiveness, with Special Reference to theAfrican Experience, UNIDO, May 2000.
3
Ibid.
4
Ibid.

32

Firm level drivers1: Given that it is firms that compete and not nations, “firms shouldbe able to exploit locational advantages and overcome locational disadvantages”.
The existence of favourable conditions at the macro-economic level or the
supranational level is meaningless if industrial firms are unable to take advantage of
their position in the market place. Enterprises that make good use of knowledge
resources, improve technological process, create attractive price and performance
package will definitely do better than those that continue to produce with the same
antiquated methods of production.
In addition, Enright indicates that “the strategies and organisation of firms can beheavily influenced by the corporate governance system present in the economy.
Such system creates numerous influences on the behaviour of firms and managers.
Governance systems that reward innovation and improvements, rather than special
relationships and non-transparency, are those most likely to send signals to firms
consistent with fostering competitive industries and high development potential2”.
Most of the elements addressed in the five categories of drivers of competitivenessare also addressed by Porter in his analysis of The Competitive Advantage of
Nations. In the remaining section of this chapter, Porter’s framework and the various
drivers introduced above, as they apply to Eritrea will be critically examined.

4.4

Factor conditions

These conditions could be grouped into five broad categories as follows:•

Human resources;•

Capital resources;•

Physical resources;•

Infrastructure; and•Knowledge resources.

The theory of comparative advantage regards a country’s endowment with suchfactors as one of the most significant indicators of a country’s ability to compete.
The availability of such factors, however, may not necessarily result incompetitiveness.
Porter in his analysis makes a distinction between basic and advanced factors;
generalised and specialised factors. Basic factors comprise natural resources,
human resources, including skilled and semi skilled labour, which require relatively
modest investment. The advanced factors enable a country to produce distinctive
products and involve high-level investments in, for example, production technology.
1
2

Ibid.

Public Private Partnership for Economic Development and Competitiveness, with special Reference to theAfrican Experience, UNIDO, May 2000

33

The existence of advanced factors is vital to an industry’s capacity to innovate andupgrade its production process, as well as product design to achieve
competitiveness. Specialised factors refer to highly specific skills and knowledge
resources, as well as specific infrastructure of relevance to the efficient functioning ofa particular industry. The generalised factors are those factors that can be employed
in a wide range of industries such as a pool of well-motivated engineering graduates.
It is very unlikely for any particular country to create and upgrade all the various
factors as there are other determinants that can influence their creation or upgrading,for example, the domestic demand conditions, the nature and scope of domestic
rivalry, as well as corporate strategies and goals. The inadequacy of factor
conditions need not necessarily be a disadvantage as there have been a number ofcases where disadvantage in certain factors has forced some firm or countries toinnovate and increase the efficient use of these factors. The Japanese just-in-time
delivery system was cited by Porter. This system was adopted to overcome theshortage of land for warehouse and stock piling. Another example is the horticulturalindustry in the Netherlands, which has developed sophisticated greenhouses tocompensate for the lack of sunshine all year round4.4.1

Human resources

In common with other developing countries, Eritrea is faced with major problems andconstraints one of which is the shortage of professional, skilled and semi-skilledhuman resource. As indicated earlier, the availability of industrial human resource is
one of the prerequisites for a competitive and sustainable industrial sector.
Human resource as a labour force is defined as a statistical concept comprisingdemographic characteristics such as total population with its breakdown to theeconomically active population, the employed, underemployed and unemployed andthe economically inactive population. The country’s National Economic Policy
Framework and Programme (the Macro Policy) defines a policy framework forhuman resource development as inter alia:•

Skilled manpower requirements of both the public and private sectors will be
met by steadily increasing enrolment at secondary and vocational schools;•

The emphasis of technical and vocational training will be the imparting ofmulti-craft dexterity and skills that enhance jobs adaptability and re-training
potential of the student1

The Macro Policy is people-focused and foresees the attainment of a self-reliant andself-sustained economy through, inter alia, a highly professional, skilled andknowledgeable work force.

1

Government of the State of Eritrea, National Economic Policy Framework and Programme (1998-2001).

34

iLabour force

The labour force is estimated at around 700,000 of which 55 per cent are in
agriculture, 28 per cent in manufacturing (it is estimated that there are around 25,000
employees in the manufacturing sector). The remaining 17 per cent are in theservices, trade, transport and communication, as well as in the mining, building andconstruction industries. The existing labour force cannot be classified as being
advanced due to inadequacies in the following:ii•

Level of education;•

Availability of industry –specific skills;•

Work morale;•

Organised labour;•

Level of productivity; and•Government’s regulatory impact on skill transfer.

Education

The adult illiteracy rate in Eritrea is extremely high. It is estimated that approximately
75 per cent of the adult population are illiterate. The Government recognises thatthe system was seriously undermined during the struggle to regain independence
from Ethiopian rule and, on assuming power, adopted a strategy to extend basic
education to all in both rural and urban areas. A nation wide campaign was also
initiated. In 1999, it was estimated that about 52.2 per cent of male and 47.9 percent of female children of school going age were enrolled in elementary schools. At
the middle school level the figures were 40.1 per cent of male and 36.5 per cent offemale. Whereas at the secondary school level, only about 17.4 per cent of maleand 13.4 per cent of female were enrolled.
Technical education and vocational training are also provided. There are six
institutions focusing on industry and industry-related subjects. The main focus areas
are in mechanics, electricity, electronics, woodworking, metalworking, machine shop
and construction. The training available is not of specific relevance to the structureof industry in the country. There are no institutions providing specific training intextiles and food processing. It was only recently that training in leather, leather
product and footwear was introduced.
The University of Asmara has been restructured and expanded with an enrolment
capacity of 1000 new students per annum. In 2001, there were about 4600
university students studying for various degree programmes. With about 29
departments and some 200 academic staff, the University is reasonable wellequipped. The University is expected to contribute to national reconstruction andeconomic development by training people and by contributing to innovation andknowledge. University education is open to all Eritrean nationals with the required35

entry qualification and competencies. Women and other disadvantaged groups areencouraged to participate in university education.
The Government is the main provider of education and the Ministry of Education is
responsible for the overall educational policy, as well as monitoring of theeducational system. The Ministry of Education has introduced a number of adultliteracy training programme, life skill training targeting both adults and youth. The
Government is also encouraging the private sector to participate in the design,planning, management and financing of vocational and technical education andtraining.

iii

Skills for industry

The Ministry of Trade and Industry in cooperation with UNIDO undertook an
industrial human resource survey in 2001/2002. According to the results of thesurvey of 319 sample enterprises, the total number of skilled and non-skilledpermanent workers in industry was 8,377, excluding those who were on national
service. About 3,342 of those employed were non-skilled workers, 753 (9 per cent)were skilled technicians, 3,308 (34.5 per cent) skilled operators, 662 (8 per cent)skilled clerks, but only 121 (1.4 per cent) and 191 (2.3 per cent) were at
professionals and managerial levels respectively1. The situation is not quite different
at the whole industrial sector level. It is estimated that approximately 41 per cent of
the industrial labour force is unskilled, 47.6 per cent are machine operators andtechnicians, 8 per cent are clerical workers and only about 3.5 per cent are at the
professional and managerial level. There is however a shortage of industrial skills.
Although some 63 per cent of the enterprises, believe that they could get the skills
needed from within the country, about 21.4 per cent indicate that they could not beable to get the skills required from the country. The existing training institutions are
not industry specific. About 53 per cent of the enterprises surveyed offer training totheir employees. The training given is basically on-the-job training. A few
enterprises, however, do have their own training centres.
The inadequacy of highly technical professional and managerial capabilities is quite
apparent in certain industrial sub-sectors. This inadequacy is the direct result of an
education system that was state driven, based on set curricula of little relevance tothe productive sectors. The policy framework for industrial skills development is alsolacking. The University is gradually restructuring its curricula to meet the demand forindustrial skills. There is also a shortage of artisanal skills not only in terms of sharenumbers but also in terms of quality. Artisans who retire or change professions are
not easily replaced.
As indicated earlier, skills development has been accorded high priority in the
country’s Macro Policy. However, concrete measures are yet to be taken to address
the problem. The Ministry of Trade and Industry with the assistance of theorganisations of the UN System, in particular, UNIDO and the UNDP, has conducted1

Human Resource for Sustainable Industrial Development, Part I, Situation, analysis and policy
recommendations, MTI, UNIDO, UNDP.

36

training workshops and training programmes through hands-on-learning process inleather production, textile and garment and in metal working. UNIDO has provided
technical assistance resources for the establishment of a leather training institute inEritreaiv

Work ethics

Work ethics could impact positively or negatively on the competitiveness of industry.
The existing wage structure is discouraging. Wages in all the industrial sub-sectors
are low and very little incentives are offered to retain skilled and trained workers.
Those in the management, professional and higher technical levels are faced withhigh income taxes ranging from 17 per cent to 38 per cent. It is not unusual forskilled labour to move from one industry to another in search of a better salary
package.
The non-availability of social amenities, limited opportunities for promotion and theweak bargaining position of workers are also influencing the level of production inindustry. There are no legal or binding wage rates. Wages are determined by thecontracting parties – employer and employee. There is, however, a Labour
Proclamation that sets out the prevailing daily wages for unskilled workers at US$
1.2 – US$ 1.5 a day and for skilled workers US$ 5 to US$ 9 a day.
The industrial labour force, however, has some commendable features. With anindustrial culture dating back to the early 1930s, the workers tend to be highly
industrious and steadfast. As observed earlier, even with a reduced number ofworkers in some industrial sub-sectors, as a result of the war with Ethiopia, thesesub-sectors managed to sustain production levels.

v

Collective organisation of labour

Given the historical development during the period under Ethiopian rule with a focus
on central planning, it should be expected that organised labour is extremely low andweak. Some economists argue that the absence of strong labour unions could be apositive factor for competitiveness as it increases flexibility in the labour market.
There are a few organised private sector institutions such as the Eritrean National
Chamber of Commerce (ENCC). The Chamber has been restructured to represent
the interest of the entire business community. It provides the private sector withmarket information, conducts research, organises trade missions and exhibitions andlimited training programmes. The Chamber is not a lead player in skills development
and, although the Chamber has influenced a number of decisions at the public andprivate sector levels, it does not actually provide a forum where the specific problems
and constraints of individual industries or industrial sub-sectors could be addressed.
Sub-sectoral associations are slowly being formed to address specific issues related
to industry. A typical example is the Eritrea Leather Industries Association (ELIA). It
37

should be noted that ELIA is an association of manufacturers. What is needed in acountry like Eritrea is the establishment of organisations where the workers,
industrial labour can express their concerns, frustrations and ambitions. The
Eritrean Government is sensitive to these issues and has been revisiting the labourlaws with a view to improving labour relations, the work environment and revitalisinglabour productivity.

vi

Government regulatory impact on skill transfer

The globalisation of economic activities makes it possible for highly skilled labour not
to be confined in one particular country. The demand for such labour is becoming
quite competitive. Great Britain and Germany have now made it possible to recruit
highly skilled professionals and technicians from the developing countries.
Recognising that there is a shortage of critical skills, the Government of Eritrea has
encouraged the import of such skills. The legal requirement is that, in the absenceof trained nationals, investors and industrial enterprises could employ expatriates at
all levels (technical or managerial) with a proviso that they train nationals who will
inevitably replace them. However, concrete measures should be taken to ensurethat during the contracting period of the expatriates, knowledge and skills aretransferred to increase the capabilities of the Eritrean employees.

4.4.1.1

Result of sample survey of enterprises

A survey of a selected number of enterprises, representing the various sub-sectors,
was conducted during the second quarter of 2002 to determine the country’s
competitiveness platform.
With regard to human resources, the availability of unskilled labour is considered tobe quite good by some 50 per cent of the enterprises surveyed. It is generally
agreed that there is an acute shortage of artisans, with negative impact on
production. Regarding technical skilled labour, about 18% consider the availability oftechnical skilled labour to be very poor, while another 55% also rated technicallyskilled labour as poor. At the sub-sectoral level, industrial operators in the textile andgarment industries are concerned about the inadequate supply of unskilled labour.
They regard this as an impediment. The same view is expressed by enterprises in
the leather and footwear, non-metallic minerals and basic metal industrial subsectors. In general, technically skilled workers are in short supply, especially for theleather and footwear, textiles and garment industries. For the wood and wood
product industry the availability of technical skilled labour is considered adequate.
Managerial skills are also in short supply. This is recognised by all the enterprises
except for those in the wood and wood product industry. Other areas of concern to
all the enterprises surveyed are work ethics, the availability and effectiveness ofvocational industry related training facilities.

38

The following is a succinct presentation of the survey result on human resources.

Figure 4.3: Survey Results – Human Resources
Quality

Human Resources

ImpactAvailability of unskilled labour
Availability of artisans
Availability of technically skilled labour
Availability of managerial staff
Wage rates
Unit labour cost / output per worker
Vocational / industry related training facility
Work ethic of labour force
0%

4.4.2
i

20%

40%

60%

80%

100% 0%

20%

40%

60%

80%

Very poor

Poor

Fair

Very negative

Negative

NeutralGood

Very good

No response

Positive

Very positive

No response

100%

Capital resources

Monetary policy and banking system

Capital resources refer to, not only the total amount of capital resources, but also thecost and types of capital available, as well as the conditions attached to securing
such resources. Access to capital resources is a major constraint to industrial
development. The Government of the State of Eritrea has inherited what is
considered by many as an obsolete monetary and fiscal system. With theintroduction of a new currency in 1997, the Bank of Eritrea was in a better position toeffect a prudent monetary policy to promote economic stability, maintain pricestability and influence credit and interest rates. The banking system is still weak.
Although the financial system has been liberalised, the financial market is far frombeing competitive. The Government, within the framework of its Macro Policy, has
introduced a preferential exchange rate, which allows the informal financial sector tooperate freely. These informal financial operations are involved in different kinds ofrotating credit and saving mechanisms. Short and long-term credit are provided by
the commercial banks and the Eritrea Investment and Development Bank.

ii

Low domestic saving

The propensity to save is low. The low domestic savings is the main reason for theprevailing high real interest rates. The disposable income is very low and with aweak banking system, it is unlikely that this problem will be adequately addressed in
the short term.

39

iii

Investment incentives

Foreign investment is encouraged in all sectors of the economy, in particular inindustry. The legal and regulatory frameworks under which private enterprises
should be promoted and developed have been simplified.
The Investment
Proclamation Law guarantees all investments projects from nationalisation orconfiscation. As the country is a signatory to the Multinational Investment Guarantee
Act (MIGA), investors are assured certain rights and benefits. To attract foreign
investment, however, there are other factors that should be addressed, such as thedevelopment of infrastructure, namely, roads, electrical energy, water resources, etc.

4.4.2.1

Result of sample survey of enterprises

Surprisingly, as high as 60 per cent of enterprises surveyed refrain from answering
questions about capital resources. Of those that responded, about 20-25 per centconsider all aspects of capital resources to be inadequate or inappropriately
addressed.

Figure 4.4: Survey Results – Capital Resources
Quality

Capital Resources

ImpactAvailability of capital
Cost of capital
Project development and financing support
Access to finance
0%20%
Very poor
Good

4.4.3

40%

60%

80%

Poor
Very good

100% 0%Fair
No response

20%
Very negative
Positive

40%

60%

Negative
Very positive80%
NeutralNo response

100%

Physical resources

The availability of physical resources is not the only element influencing
competitiveness; access to resources, the quality of the resources, the proximity tomarkets, ownership, as well as the cost of such resources are elements that can
impact positively or negatively on competitiveness.

i

Land ownership

Ownership of land is the exclusive right of the Government but land may be granted
to nationals and foreign investors. The land, however, is not to be inherited, sold or
disposed of. Access to land for investors could also be a cumbersome process inspite of the facilitating role of the Eritrean Investment Centre.
40

Arable land in Eritrea has gradually diminished as a result of adverse climaticconditions and the indiscriminate use of forest/wood resources. Agriculture accounts
for only about 20 per cent of GDP. Whereas in the 1960s and 1970s, the bulk of raw
materials for the agro-industries was procured from the domestic agricultural sector,
today raw materials are mostly imported.

ii

Minerals

Eritrea is endowed with mineral resources, both metallic and non-metallic. Examples
of such resources are marble, granite, state limestone, silica etc. Many of the known
deposits of minerals remain unexploited. The Government has been conducting
geological surveys to determine the nature and scope for the efficient exploration
and beneficiation of these resources. The availability of these minerals and theirpotential for processing could impact positively on the development of themetallurgical and engineering industries in the country. These industries are a sinequa non for a sustained industrialisation process. As indicated earlier, whenanalysing the existing structure of industry, foreign investors have expressed interestin mining and a few of them have acquired prospecting and exploitation rights.

iii

Water

The country’s Macro Policy recognises the importance of water especially as aprerequisite for the country’s economic development endeavour.
Eritrea’s
geographical and climatic conditions impose certain limitations on its water
resources. There is a shortage of water for industry and access to safe drinking
water is also limited.
There are a few perennial rivers and lakes. Underground water is known to exist.
The Government has invested in a number of new initiatives to improve the watersupply. Dams have been constructed, water catchment’s facilities have also been
erected. Measures are also being introduced for conservation and recycling ofwastewater and a long-term national water resource plan is being prepared.

iv

Raw materials

Agriculture is a strategic sector and yet this sector is not well developed. Throughfarming and animal husbandry, a variety of products are produced for household
consumption and the domestic market. As indicated earlier, the erratic climaticcondition is a problem. However, the methods of farming and animal husbandry are
critical problems, which should be addressed by the Government and the private
sector.

41

Farmers are currently being given all sorts of incentives to improve the quantity andquality of products. However, with limited infrastructural facilities not much is being
achieved.
The alternative is to encourage the development of large-scalecommercial agriculture for food production and other raw materials. The effective
storage and transportation of these raw materials are also being addressed by theGovernment and a few operators in the private sector.
Other raw materials such as mineral resources are being investigated andencouraged to develop as already indicated in section ii above.

v

Tourism

Favourable climatic conditions, historic sights, adequate hotel services, availability ofinternational transport are all factors influencing the development of the tourism
sector. Eritrea has a natural scenic beauty, picturesque traditional villages and amarine life that could attract tourists. The Government has developed a strategy todevelop the industry, which includes privatisation of hotels, extension of the ports
and airports, development of road networks and quality and environmental measures
to avoid health hazards and sustain the environment. With political stability, thepotential is there for a vibrant tourism sector.

4.4.3.1

Result of sample survey of enterprises

More than 70 per cent of the enterprises surveyed are concerned about theavailability of water resources. However, the degree of concern varies. Whereas
those in the mining industries are extremely satisfied, enterprises in the foodprocessing, textile and wood industries rate the availability of water as poor or fair.
The remaining enterprises consider the availability of water to be very poor.

Figure 4.5: Survey Results – Physical Resources
Quality

Physical Resources

ImpactAvailability of suitable land
Water supply (availability and reliability)
Semi-processed materials
Raw materials
0%20%
Very poor
Good

40%

60%

80%

Poor
Very good

100% 0%Fair
No response

20%
Very negative
Positive

40%

60%

Negative
Very positive80%
NeutralNo response

100%

Most of the respondents are satisfied with raw material availability. The textile,leather and footwear producers have difficulty in getting raw materials locally. Itshould be noted, however, that some enterprises fail to respond to this question.
Interestingly, these are enterprises whose raw materials are imported.
42

The survey also reveals that the cost of raw materials and water is a constraining
element with regards to production with negative impact on competitiveness.

4.4.4

i

Infrastructure

Transport and communications

Eritrea once had an impressive infrastructure of road and railway networks built by
the Italians to facilitate trade and development. They were destroyed during the long
war with Ethiopia. The roads are being rehabilitated and new feeder roads are being
constructed to link the productive rural areas to the towns and cities where industries
are located. The road from the capital Asmara to the port of Massawa has beenrehabilitated.
Eritrea’s main network of roads connects Massawa and Asmara, Massawa andAssab, Asmara and Decamhare, Egenaite and Zala Ambessa. Other road links
include Asmara-Keren, Afabet and Nakfa in the North, as well as the Barertu
Tessanai road, which leads to Kassala in Sudan. The quality of the road linking
villages and cities is extremely poor, the construction of rural and feeder roads would
ensure a definite and reliable linkage between the productive regions for agriculturaland mineral raw materials with the urban areas where such raw materials areprocessed. Transport cost remains high and is a constraint to competitiveness.
The two ports of Massawa and Assab are being connected through the constructionof a coastal highway. Transportation by sea is highly desirable to transport bulky
raw materials and finished products to neighbouring countries and other trading
partners in Africa and elsewhere. The domestic sea route has tremendous potential
but so far only a handful of sea transport operators use this mode of transport.
Sea transport is also however, a major problem. The two ports of Assab and
Massawa are being restructured. Warehouses and other storage facilities are in
short supply. The Port of Massawa has a total of 4,600 square meters of warehouse
space, an additional 46,000 square meters of open sheds and 60,000 square metersof open space. The total storage capacity of the port is 385,930 metric tons. The
Port of Assab has warehouse facilities covering 25,960 square meters, open shedsof about 40,354 square meters and 209,005 square meters of open yard. The
overall storage capacity is over 400,000 metric tons. However, the Port handles
over 3 million tons of cargo every year.
The railway network, which was built in the 1930s, was badly damaged during the
war years. The railway, if properly developed, is capable of transporting bulk raw
materials and finished products at relatively cheaper rates than road transport.
Air transport was until recently operated by foreign countries. The country now has
its own national airline, which operates from Eritrea to selected countries in Europe,
Africa and the Middle East.
43

The airports at Asmara and Assab have been upgraded to handle both passenger
and cargo jets. The installed facilities for cargo are inadequate because of thelimited number of airlines linking Asmara and Assab with the outside world. Directaccess to export markets or to suppliers is extremely limited. The costs of air cargoservices are therefore excessive and non competitive.
Transport network is clearly inadequate but progress is being made to improve on
the existing network.
Telecommunication services are available in the country but not quite reliable. The
cost of telecommunications is extremely high. The availability of Internet access hascreated an efficient avenue for business to access industrial information and beconnected with suppliers and clients worldwide. The cost of telecommunication,
however, remains very high.

iiElectricity and energy

The most important sources of energy in Eritrea are biomass and from petroleum
products. Fuel wood represents more than 70 per cent of biomass energy. Imported
petroleum accounts for about 20 per cent. Petroleum products are essential forindustrial energy and for thermal energy generation. The Macro Policy calls for thedevelopment of the energy sector. The energy generating facility at Hirghligo isbeing reconstructed with a new 84 M.W. power station. The possibility of exploiting
and developing alternate sources of energy are being explored. Measures are being
taken to address the supply and high cost of electricity.

iii

Social infrastructure

The social infrastructure is also being developed. New schools are being built andthe private sector is being encouraged to invest in education and training.
Vocational and technical schools are also being upgraded. The Government isaware of the status of the nation’s health. It is estimated that over 50 per cent of therural communities lack basic healthcare facilities. Nation-wide, there are only about
20 hospitals, most of which are not well equipped. Health centres are unevenly
distributed and basic healthcare is in a precarious state. The country’s National
Healthcare Programme aims at providing healthcare services for all, including theestablishment of health promotion services. With the rise in HIV/AIDS infections, acomprehensive national HIV/AIDS programme is being developed.

4.4.4.1

Result of sample survey of enterprises

The inadequacy of infrastructural facilities and the high cost of transportation andenergy are detrimental to industrial development. Most of the enterprises surveyed44

refrain from responding to the questions raised about infrastructure. However, of
those who responded, more then 70 per cent identify electricity cost and availability
as a major constraint; 55 per cent consider telecommunication services to be poor.
Telecommunication and electricity cost and availability are considered to have very
negative impacts on industrial development and the ability of industry to compete.

Figure 4.6: Survey Results – Infrastructure
Quality

Infrastructure

ImpactTelecommunication services
Electricity cost & reliability
Road and rail network
Air transport network
Sea transport network and access to harbour facilities
Recreational facilities
Social Infrastructure (Medical facilities, schools, etc)
0%20%
Very poor
Good

4.4.5

40%

60%

Poor
Very good

80%

100% 0%Fair
No response

20%
Very negative
Positive

40%

60%

Negative
Very positive80%
NeutralNo response

100%

Knowledge resources

Porter contends that knowledge resources are to be found in the universities,
research institutions both government and private sector owned, in market researchetc. The global economy relies heavily on knowledge resources and information andcommunication technologies. It is a knowledge driven economy in which knowledge
is an important factor of production, a means to improve the economic performanceof countries or to transform industrial processes. The increasing speed ofcontinuously revolutionising information and communication technology has made it
possible to disseminate R & D results, as well as codified and tacit knowledge much
more rapidly around the globe. Knowledge is also about know-how, creativity andintelligence, in particular, the intelligence to be found in various software andtechnology.
Some economists believe that unlike other factors of production, knowledge does notdiminish in value but rather increases its value upon use1. The information revolution
driving the global economy has, therefore, widened the range of human resources
which now include research and applied development, the use of computer aided
design and computer aided manufacturing (CAD/CAM) techniques, as well as
sophisticated marketing techniques. It is not unusual for a firm established in Britain
or in the USA to have some of its transactions being processed in Bangalore or New
Delhi in India and business transactions concluded in a matter of minutes throughthe fusion of information and communication technologies.
The impact of knowledge resources on competitiveness will depend, not only on the
research capacity and accumulated knowledge found in the universities and otherbusiness information providers, but also on the country’s or firm’s ability to master,1

B. Arthur “Increasing Returns and the New World of Business” Harvard Business Review, July/August 1996.

45

absorb and utilise knowledge to transform production process, improve the quantityand quality of products and encourage more and more innovations.

i

Institution infrastructure

The University of Asmara aims at becoming a centre of excellence for academic
research and specialised knowledge, while at the same time establishing strategic
alliance with the private sector. A major problem, however, is resource allocation
between discovery and generation of knowledge on the one hand and disseminationon the other. The priority appears to have been given to the latter. The research
being done by the University in a university setting is not demand driven. In
conducting its research, the University does not respond to market signals. What thecountry needs desperately is to sustain industrialisation in business and professional
services. 1 The University with its pool of specialised talents could provide suchservices. In addition to the University, the individual line ministries have establishedresearch and human resource development divisions, that are expected to provide
training, disseminate knowledge to other divisions within the ministries, as well as
conducting research, including applied research in specific fields.
There is a dearth of R & D institutions and facilities in Eritrea. A few industrial
enterprises have installed laboratory facilities, which are not so well equipped. Thereis a definite need to establish R & D facilities to support the industrialisation process.
Whatever research programme exists in the country, it hardly addresses the issue ofcompetitiveness.

ii

Market and product information

The Eritrean National Chamber of Commerce appears to be the only source ofmarket information and, to a limited extent, industrial and technological information.
There is definitely a dearth of industrial and technological information in the country.
Internet/satellite connectivity was only approved by the Government in 2001,
therefore certain information are not yet in place. The information provided by the
Chamber is considered good but is available at irregular intervals. Relevant
information on industry is either inadequate or simply not available. The statistical
capacity and capabilities need to be strengthened, in particular, to collect andprocess industrial information of relevance to trends analysis, policy development,
implementation and monitoring.

1

Human Resource for Sustainable Industrial Development Part I – Situation analysis and policy
recommendations. MoTI, UNIDO, UNDP, 2003.

46

iii

Low connectivity and networking

As indicated earlier, the global economy is a knowledge driven economy, therefore,
countries and industrial enterprises must get on-line.
Information andtelecommunication technology have proved useful in transforming products,
processes and marketing in the developed and developing countries. However, very
few businesses/industries have Internet access in Eritrea. Even government
departments are not adequately switched on to the Internet. Without the requisite
information, infrastructure and Internet connectivity, Eritrea’s industry will be at a
disadvantage. It is imperative that the private sector, Government and theeducational institutions develop more capabilities in the use of computers.

4.4.5.1

Result of sample survey of enterprises

Of the industrial enterprises surveyed, many are not so concerned about knowledge
resources and tender in a no response. The few respondents consider knowledge
resources a major problem. Over 80 per cent of the enterprises that responded thinkthat what is available is deplorable with very little impact on industrial activities.
Enterprises in the wood and wood product industrial sub-sector are impressed withthe knowledge resources made available to them. A similar response is given to theavailability of market and product information. Those engaged in leather, leather
good and footwear production are dissatisfied with the market and productinformation services or have limited access to market and product information by
virtue of not being properly wired to the Internet. The industrial enterprises in the
non-metallic mineral and basic metal industries, as well as those producing
fabricated metal, machinery and equipment are reasonably satisfied with theinformation available.

Figure 4.7: Survey Results – Knowledge Resources`
Quality

Infrastructure

ImpactResearch facilities , resources and support services
Trade and business association support
Market and product information
0%

20%
Very poor
Good

4.5

40%

60%

Poor
Very good

80%

100% 0%Fair
No response

20%
Very negative
Positive

40%

60%

Negative
Very positive80%
NeutralNo response

100%

Demand conditions

The focus is on the nature, scope, size and patterns of growth of domestic demandfor industrial goods and services. Demand conditions at home often impact on thepace and type of innovation that could, inevitably, increase competitiveness. Porter,47

in his analysis, argues that in the pursuit of competitiveness, the nature and qualityof domestic demand are of greater significance than the absolute size of thedomestic market. In his view, when there is a dynamic domestic demand for aparticular product or products, domestic enterprises are constantly under pressure tocome out with new and better quality products and services or improve packaging.
In short, they have to innovate, thereby, providing better value for money.
Examples of elements of domestic demand that can encourage competitiveness are:•

A particular demand for an industry’s product or services that represent asignificant share of the total national demand;•

The increasing presence of sophisticated and demanding local buyers; and•Domestic demand that anticipates and leads to international demand.

Porter argues that segments of an economy that are important globally andrepresent a higher share of local consumption would provide domestic industries
with a source of advantages in that these segments will receive earlier and more
attention by manufacturers and are more likely to become competitive.
The size and pattern of growth in domestic demand could lead to competitive
advantage and where there are economies of scale, there is a tendency forindustries to invest more in innovation, technology, etc., to improve production. Thevery presence of a large number of independent buyers with sophisticated demandor specific ideas on product requirements could encourage manufacturers to invest
more on innovation. In time a dynamic environment will emerge for innovation, witha view to improving the quantity and quality of products. Other investors will be
prepared to enter the industry, restructure and expand existing enterprises. On theother hand, Porter also reveals that if the domestic market shows early signs ofsaturation, manufacturers are obliged to lower prices and introduce new productfeatures, as this will stimulate demand. There is also a tendency for manufacturers
to look elsewhere for new markets, especially in neighbouring countries.
The composition of domestic demand, therefore, could influence competitiveness,but more important is the size and pattern of growth of domestic demand which
could strengthen competitive advantage by encouraging more investments andinnovation.

4.5.1

Eritrea’s demand conditions

It is estimated that the population of Eritrea is about 3.8 million with an annual growthrate of 2.7 per cent. Per capita GDP is approximately US$ 200 per annum. The sizeof the domestic market is therefore very limited. Demand is mainly influenced byprivate consumption expenditure. Although Government expenditures for basic
consumer items, more specifically food, increased quite substantively during theyears of conflict with Ethiopia, the consumer demand is unsophisticated. People are48

more concerned with purchasing food, fuel energy and clothing.
emphasis is on survival and subsistence.

Therefore, theA World Bank report in 1996, indicated that 69 per cent of Eritreans were unable toobtain sufficient food and essential goods and services. Approximately 80 per centof those who could be considered poor live in the rural areas where agricultural
productivity had declined tremendously as a result of war and adverse climate
conditions. Many families rely on remittances from abroad and food aid.
Eritrea being a young state, government demand and investments are highly
dependent on foreign funding. These are usually not without onerous terms andconditions. The domestic market is also penetrated with important goods, such as
food, textiles, beverages, tobacco, leather products, wood and wood products, nonmetallic and basic metal products, etc. The existing enterprises have a strong
domestic focus, but are being encouraged by the Government to venture into export
production. Marketing and distribution services and infrastructure are extremely
weak, knowledge resources are also not adequate to have a positive impact on
demand conditions and competitiveness.
The Macro Policy has given priority to promoting an export culture, while at the sametime expanding domestic demand. The crash programme for an export take-off is areal challenge. Producers will move on from producing low quality goods for an
unsophisticated domestic market to high quality goods for an external market. The
textile, leather, leather product and footwear industries are primary candidates tobenefit from the incentives being offered to go into export oriented manufacturing.
As Eritreans living abroad gradually return home, a dynamic environment will
emerge, demand will become more sophisticated and manufacturers will invest more
to improve the quality and range of products.

HIV/AIDS
The number of people living with HIV/AIDS in Eritrea is increasing annually. It isestimated that about 2-3 per cent of the population already have HIV/AIDS. In
common with other African countries, those affected are mostly between the ages of
15-50 years. There are also thousands of children infected with HIV/AIDS. In 1996,
HIV/AIDS was ranked as the tenth major cause of death. By the year 2000,
HIV/AIDS was ranked as the first major cause of death of the adult population.
HIV/AIDS is slowly distorting production and consumption patterns, as well assustainable livelihood. Both, urban and rural areas have seen life expectancy
reduced, productivity diminishing slowly and sustainable livelihood being eroded.
The United Nations Development Programme, UNDP, and the co-sponsors of
UNAIDS are also taking major initiatives to help the Government in its efforts tocontain the spread of the disease.
The HAMES project was launched to address HIV/AIDS, Malaria, sexuallytransmitted disease and tuberculosis. The aim is to provide proactive, cost effective
49

and safe disease control measures. The main priority is, of course, HIV/AIDS.
Emphasis will be on curbing the spread of the disease, primarily through behaviouralchange. However, it is imperative that the long-term perspective of HIV/AIDS be
addressed. Therefore, while awareness, creation, prevention and care are important
issues to be addressed, more consideration should be given to the impact on
production in agriculture and industry, work practices and the use of technology toensure sustainability in production.

4.5.1.1

Result of sample survey of enterprises

Given the limited domestic focus of industrial enterprises, it is not surprising that over
60 per cent of those surveyed consider the size of demand to be good or very good.
Poor ratings emerge from those surveyed in the leather and leather product subsector, as well as enterprises producing basic metal and fabricated metal products.
The structure of demand receive poor to fair ratings, but some 60 per cent of thosesurveyed express no views on this element of the questionnaire.
Regarding export opportunities, some 60 per cent of those surveyed are notinterested in exploiting exports potentials and, therefore, give no response. The
remaining 40 per cent are not that convinced that there is a tremendous potential forexport of manufactured goods. In general, only about 15 per cent of manufacturers
think that export opportunities are good.
Regarding government demand, over 40 per cent of those surveyed consider
government demand to be quite good. Their responses range from fair to very good.
Very few responses emerge on HIV/AIDS. The majority of manufacturers in thevarious sub-sectors are of the view that there is no impact on their activities. Only
about 5 per cent of those interviewed are convinced of the negative impact of
HIV/AIDS on production activities. Another five per cent believe HIV/AIDS is
disastrous for industrial development and sustainable development.

Figure 4.8: Survey Results – Demand Conditions
Quality

Demand Conditions

ImpactSize of the domestic market
Export opportunities (Africa and Middle East)
Export opportunities (Other)
Structure of domestic demand (consumer sophistication etc.)
Levels of market differentiation and saturation
Government demand
Population growth
HIV/AIDS
0%

20%
Very poor
Good

40%

60%

Poor
Very good

50

80%

100% 0%Fair
No response

20%
Very negative
Positive

40%

60%

Negative
Very positive80%
NeutralNo response

100
%

4.6

Related and supporting industries

The existence of a number of industries, in a particular country coordinating andsharing activities, augurs well for competitiveness. These industries form strategic
alliances to source raw materials and other related inputs for production. These
industries also establish very close working relationships and help each other inmany aspects of the production process, such as in the application of technologies,
accessing information that could improve the quality of products identifying possible
new markets and sharing R & D results.
For example, the fashion industry in Italy, covering garments, leather products andfootwear, as well as jewellery, has established networks of related and supporting
industries through forward and backward integration. The design trend in the
footwear industry could trigger specific designs among clothes manufacturers tocorrespond with the styles and colours of the shoes being produced. The footwear
manufacturers in turn would have to rely on the leather producers to produce
appropriate types of leather. The leather industries in Italy are internationallycompetitive and could be relied upon to supply good quality leather to shoe
manufacturers. Porter in his analysis states that “competitive advantage emerges
from close working relationships between world class suppliers and the industry”. It
is not surprising, therefore, that Italian shoe manufacturers are among the best in theworld.
Eritrea, with its close ties with Italy, has acquired some critical skills in leather goods
and footwear production. The manufacturers of leather goods and footwear procure
leather from the domestic leather industries whose plant and machinery are
extremely old and whose outputs have declined to the extent that finished leather
has to be imported into the country. As indicated earlier, a major constraint toindustrial development in Eritrea is the lack of appropriate mechanisms for the flowof industrial and technological information, which could help manufacturers improve
production techniques and the quality of their products.
The successful development of the food processing industry also depends on theavailability of cold storage facilities and efficient transport facilities. The agricultural
lowlands could be extremely hot and most of the fruits and vegetables being
processed in the country are perishable goods. These products should be properly
stored in cold storage facilities as raw materials and finished products. Cold storage
facilities are inadequate in Eritrea. Related and supporting industries of relevance toEritrea’s industries should be identified and promoted.

4.6.1

High dependence on imported supplies of intermediate and capital
goods

Although the country does have a few enterprises producing intermediate goods to
be used by other industries, there are very few shared activities in the value chain.
The country imports a wide variety of raw materials, intermediate and capital goods,
51especially for the food processing, textile, non-metallic minerals basic metal andchemical industries.
The lack of engineering industries also makes it practically impossible for the country
to produce certain types of intermediate and capital goods, spare parts andcomponents. Engineering industries are the main suppliers of a whole range of
products that can be used in other industries such as the food processing industries,
metallurgical, chemical ant transport equipment industries. In addition, repair andmaintenance facilities are inadequate.

4.6.1.1

Results of sample survey of enterprises

The survey reveals that there are very few advanced value chain links in theindustrial sector and cooperation along the value chain is negligible. In the foodprocessing industries cooperation is considered to be good. The same applies to thewood and wood product industry. Overall, some 30 per cent of industries ratecooperation as poor to fair. Over 55 per cent of those surveyed provide no responseto this question.
This is understandable as the tendency is for individual
manufacturers to go it alone in the production process.
There are a number of consulting firms offering professional services in engineering,
management, production planning, etc. Their services are appreciated by about 50
per cent of those surveyed.
As there are only a few companies offering after sales services, buyers of plant andmachinery have to ensure that provisions are made for such services. The quality ofafter sales services is extremely poor in Eritrea.
Figure 4.9: Survey Results – Related and Supporting Industries
Quality

Related and Supporting Industries

ImpactTrade and business association support
Transport logistics
Cold storage and transport facilities
Corporate financial services
Professional services
Availability of domestic suppliers
Dependence on imports
Linkages to technology
Access to information
Exchange of research
Joint problem solving
Market and product information
After sales service
Sub-contractors
Value chain co-operation (share critical activities)
0%

20%

40%

60%

80%

100% 0%

20%

40%

60%

80%

Very poor

Poor

Fair

Very negative

Negative

NeutralGood

Very good

No response

Positive

Very positive

No response

52

100
%

4.7

Firm strategy, structure and rivalry

According to Porter, firm strategy, structure and rivalry are the condition in a nation
relating to how companies are established, organised and managed. The way firms
are managed depend on the social history, educational and cultural systems of acountry. In a public sector driven economy with government ownership of industries,
such industries will be managed in exactly the same way as the civil service. Thiswas particularly true of Eritrea in the 1970s and 1980s. The successful privatisation
process has reinstated the private enterprise culture. The environment in whichthese enterprises operate is, however, not that conducive to attract investment ininnovation, human resource and in the production processes.
The number of industrial enterprises in a specific sub-sector of relevance forcompetitiveness is quite small, there is therefore no significant domestic rivalry.
Given the low rivalry between industrial enterprises, manufacturers would rather
establish alliances within a specific pipeline with other manufacturers producing
upstream or down stream products. In the leather, leather product and footwear
industry, there is some degree of cooperation and the manufacturers have cometogether to form the Eritrea Leather Industrial Association.

4.7.1

Result of sample survey of enterprises

The survey reveals that cooperation among enterprises is very rare. Industrial
enterprises are not worried about issues affecting firm strategy, structure and rivalry.
They are more concerned about macro-level drivers.
Cooperation and contact with suppliers are considered to be quite good with positive
impact on production and the delivery of services. In the leather sub-sector,
however, about 45 per cent of manufacturers’ view both, cooperation and contact
with suppliers as poor.
Regarding cooperation with competitors, the responses are few. In general,
manufacturers in all the sub-sectors consider cooperation with competitors
deplorable. It should be noted, however, that for manufacturers in the wood andwood product and metallic mineral sub-sectors, cooperation with competitors have apositive impact on production. A few manufacturers in the leather and leather
product industrial sub-sector are also optimistic about cooperation with competitors.
A significant number, approximately 65 per cent, are extremely pleased with the levelof cooperation with Government. The continuing support of the Government,
especially as a major consumer of goods and services has a positive impact on
production. Some believe that the Government should do more to create anenabling environment for private sector-led industrialisation.

53

Figure 4.10: Survey Results – Firm Structure, Strategy and Rivalry
Quality

Firm Structure, Strategy and Rivalry

ImpactCo-operation and contact with suppliers
Co-operation and contact with clients
Co-operation and contact with competitors
Co-operation and contact with government
Employee performance incentives
0%

4.8

20%

40%

60%

80%

100% 0%

20%

40%

60%

80%

Very poor

Poor

Fair

Very negative

Negative

NeutralGood

Very good

No response

Positive

Very positive

No response100%

Government

The four broad determinants, namely factor conditions, demand conditions, related
and supporting industries and firm strategy, structure and rivalry can be influenced
by Government. As rightly pointed out in the country’s National Economic Policy
Framework and Programme: “the Government has a clear vision, unity of purpose
and strong commitment to development of a private sector–led market economy”1
The Government has taken concrete decisions to improve factor conditions, inparticular, to increase and upgrade the educational and skill training opportunities in
the country; improvement of labour law and work conditions; making land available
for enterprises in the industrial sector, including foreign owned enterprises andrestoring and expanding transport and communications networks devastated bywar.
The Government has also introduced realistic macro-economic policies, such as
taxation policy, monetary policy including an exchange rate policy, as well as aninvestment policy, all aimed at facilitating private sector-led industrialisation.
Although government interactions and interventions are critical for industrial
competitiveness, the Government’s interface with industry has not succeeded in
improving the competitiveness platform or industrial competitiveness.
Governments worldwide have limitations and very often lack the financial resources,
technological know-how and administrative machinery to address critical issues ofdevelopment and competitiveness. Therefore, the Government will have to work
closely with the private sector. The private sector in Eritrea is weak and lacks thecapacity to join forces with the Government to provide public goods such as
infrastructure, education, training, knowledge and information. Nevertheless, it isdesirable that the Government and the private sector participate as equal partners indevelopment and in addressing industrial development and competitiveness.

1

National Economic Policy Framework and Programme 1998-2001, Government of the State of Eritrea.

54

4.9

Quality, environmental
development

management

andsustainable

The National Economic Policy Framework and Programme recognises the need forthe following:•

Enhancement of production efficiency and quality of products and services;•

In promoting export oriented industries, rigorous quality standards will be
required by the international market, therefore, quality and standards ininstitutions and facilities should be upgraded and established to provide
reliable and continuous services for inspection, testing and certification; and•The Government being committed to sustainable economic development has
an environmental element in its National Economic Policy, which stipulates
that sound environmental standards will be established and appropriate
measures will be introduced to ensure sustainable environmental practices in
the use of the nation’s diverse resources, in particular, in the processing ofagricultural and mineral resources.

4.9.1

Quality

The reality in Eritrea is that the quality of products and quality performance ofindustrial enterprises are relatively poor. Quality means different things to different
people and for consumers and producers. Nevertheless, it is generally accepted that
quality refers to the degree to which a set of inherent characteristics fulfils therequirements of the domestic and external markets.
With the establishment of the Eritrea Standards Institution in 1995, it is assumed thatthe promotion of standardisation, quality assurance and metrology in the country will
be assured. The Eritrea Standards Institution has as its main objectives thefollowing:•

Protect the safety, health and other interests of domestic consumers andcustomers;•

Safeguard domestic markets from inferior quality products;•

Secure wider markets abroad for Eritrean products; and•Assist enterprises to achieve sustainable global competitiveness for theirproducts.

In particular, the Eritrea Standards Institute is committed to promoting
standardisation by developing Eritrean standards for products, processes andpractices, by improving quality assurance methods and introducing state of the art
metrology services. The Institute has developed approximately 720 national
standards of which 334 have been published and are legally binding. Given thecomplexity of the productive base of the country, these standards are too few fornation wide quality assurance. The quality assurance department of the Institute55

promotes quality awareness and assist in introducing quality management systems
in industrial enterprises, as well as accrediting testing laboratories. The inspection,
testing, certification and training activities of the quality assurance department arevery limited. The metrology department conducts legal, industrial and scientificmetrology activities to verify and calibrate measuring instruments. The department,
however, lacks the critical expertise, equipment and other facilities.
Some of the line ministries have also established their own quality control
laboratories. For example, the Ministry of Fisheries has its own quality control
laboratory in Massawa that conducts microbiological and chemical analysis forfishery products and the marine ecosystem. The laboratory is well equipped withmodern equipment and a core of trained staff. The laboratory services are opened
to all fishery plants in the country. The Central Laboratory in the Ministry of Healthprovides services to the productive sectors covering chemical and microbiologicalanalysis.
Individual industries have their own laboratory facilities and basic quality
infrastructure and services. In general, these facilities and quality management are
not well developed. Although they could get some help from the Ministry of Health,the Ministry conducts random tests on foodstuff and beverages and is itself notadequately equipped for continuous quality assurance.
Regarding the quality of certain goods being exported, such as semi finished leather,salt, oil seeds, fishery products, etc., these products have been proved to becompetitive in international markets. Other goods such as textiles, leather products,
etc. are being exported, however, the lack of modern and reliable testing facilities
makes it impossible to regularly verify the quality.

4.9.2

Environment

Industrialisation and the intensive exploitation and processing of a country’s
resources could easily destroy sustainable livelihood if such resources are notutilised in a sustainable manner. Eritrea’s Macro Policy acknowledges that thecountry’s “natural resources, including soil, forest, water and wildlife have been
exploited and degraded”. Therefore, the sustainable use of renewable and nonrenewable resources is a priority objective of the environmental element of theMacro Policy.
The Government is committed to establishing sound environmental standards, aswell as introducing sustainable management practices. To ensure that its objectives
are achieved, the Government established a new Ministry of Land, Water andEnvironment. The National Environment Management Plan provides basic policy
guidelines on environmental management, guidelines on impact assessment andrules and regulations to protect and sustain the environment. However, there is no
specific industrial sector environmental policy. Environmental impact assessment isonly applicable for new investments. Existing manufacturing enterprises are notscreened to determine their compliance to the guidelines. Industrial and solid waste
is not treated and is usually streamed into the municipality’ solid waste without any
56

pre-treatment. As there is no legal enforcement on environmental issues, industries
will continue to discharge untreated waste and pollute the air and land withhazardous substances.
The textile, leather and leather product industries have tremendous potential, but the
production processes are not energy or resource efficient. In addition these areindustries are known for polluting land, water and air. Appropriate effluent standards
should be defined and legally enforced to protect the environment.

4.9.2.1

Result of sample survey of enterprises

The quality of raw material inputs is considered to be quite good or very good byapproximately 60 per cent of enterprises covered in the survey. They also believethat the quality of raw material input has tremendous impact on the quality of goods
produced. It should not be forgotten, however, that these industrial enterprises
produce mainly for the domestic market – a very unsophisticated market. The
quality of final products for the export market is far from being competitive and very
few enterprises are interested in this aspect of the questionnaire. Of the 20 per centthat bothered to respond 50 per cent believe that the quality is good, whereasanother 50 per cent are convinced that the quality of final products for export are
fairly poor or fairly good, depending on which industrial sub-sector they are in.
Manufacturers in the basic metals, fabricated metal product, machinery andequipment industrial sub-sectors clearly indicate that the quality was poor andtherefore limit the degree to which they can compete with other producers in the
Eastern and Southern African region or locally.
Furthermore, over 60 per cent of manufacturers are not concerned about complying
to standards and the impact on production. Manufacturers in the leather and leather
product industrial sub-sector are fully aware of the implications of not adhering tocertain standards.
On environmental issues, it is not surprising that manufacturers are not taking such
issues seriously. About 70 per cent refrain from responding to questions on
pollutants in the production environment, as well as on cost of compliance toenvironmental legislation. There is no responsible Government authority to monitor
and inspect factory operations in the context of environmental management andprotection.

Figure 4.11: Survey Results – Quality and Environment
Quality

Quality and Environment

ImpactQuality of material inputs
Quality of final product for domestic consumption
Quality of final product for export
Cost of compliance to standards
Pollutants in the production environment
Cost of compliance to environmental legislation
Environmental protection legislation / guidelines
0%

20%

40%

60%

80%

100% 0%

20%

40%

60%

80%

Very poor

Poor

Fair

Very negative

Negative

NeutralGood

Very good

No response

Positive

Very positive

No response

57

100
%

5

Concluding remarks

In the preceding chapters an attempt is made to construct the competitivenessplatform of Eritrea based primarily on Porter’s Diamond and variations thereof, inparticular, the drivers of competitiveness as defined by inter alia, Michael Enright.
Given the nature and level of development in Eritrea some of the attributes were notconsidered relevant. The Macro-level drivers are considered necessary but
insufficient for a sustained and competitive industrialisation. The same factors that
influence development also influence the competitiveness of industry. However, in
an increasingly global economy, a multi-level approach is deemed necessary foreconomic development, as well as for industrial competitiveness.
The role of the different stakeholders in the process should be clearly understoodand mutually appreciated. As the Government gradually redefines its role as a
facilitator of private sector-led development, while at the same time being theguardian of overall economic management, the Government’s role becomes clearly
one of selective intervention to ensure a conducive environment for the private
sector to develop through, inter alia, investments; acquisition of technologies,
including competitive technologies; R & D; human resource development;
standardisation and quality improvement; support services; etc.
A major prerequisite for sustainable industrial development and competitiveness is,therefore, the existence of an industrial policy defined in an interactive process. In
Part II of this study on Integrated Industrial Policy for Sustainable Industrial
Development and Competitiveness in Eritrea, an industrial policy framework ispresented.

59

Annex I – Competitiveness survey questionnaire
Competitiveness Factors
Quality of Competitive Drivers

Impact on Business

1 – Very poor

1 – Very Negative

2 – Poor

2 – Negative

3 - Fair

3 – Neutral

4 – Good

4 – Positive

5 – Very good

5 – Very Positive

Rate the factors below according to their impact on your competitivenessQuality

FACTOR CONDITIONSHuman Resources
Availability of unskilled labour
Availability of artisans
Availability of technically skilled labour
Availability of managerial staff
Wage rates
Unit labour cost / output per worker
Vocational / industry related training facility
Work ethic of labour force
Other Resources
Availability of suitable land
Water supply (availability and reliability)
Semi-processed materials
Raw materials
Research facilities , resources and support services
Trade and business association support
Market and product information
Availability of capital
Cost of capital
Project development and financing support
Access to financeTelecommunication services
Electricity cost & reliability
Road and rail network
Air transport network
Sea transport network and access to harbour facilities
Recreational facilities
Social Infrastructure (Medical facilities, schools, etc)
DEMAND CONDITIONS
Size of the domestic market
Export opportunities (Africa and Middle East)
Export opportunities (Other)
Structure of domestic demand (consumer sophistication etc.)
Levels of market differentiation and saturation
Government demand
Population growth
HIV/Aids

61

ImpactQuality of Competitive Drivers

Impact on Business

1 – Very poor

1 – Very Negative

2 – Poor

2 – Negative

3 - Fair

3 – Neutral

4 – Good

4 – Positive

5 – Very good

5 – Very Positive

Rate the factors below according to their impact on your competitivenessQuality

RELATED & SUPPORTING INDUSTRIES
Trade and business association support
Transport logistics
Cold storage and transport facilities
Corporate financial services
Professional services
Availability of domestic suppliers
Dependence on imports
Linkages to technology
Access to information
Exchange of research
Joint problem solving
Market and product information
After sales service
Sub-contractors
Value chain co-operation (share critical activities)
FIRM STRATEGY, STRUCTURE & RIVALRY
Co-operation and contact with suppliers
Co-operation and contact with clients
Co-operation and contact with competitors
Co-operation and contact with government
Employee performance incentives
QUALITY & ENVIRONMENT
Quality of material inputs
Quality of final product for domestic consumption
Quality of final product for export
Cost of compliance to standards
Pollutants in the production environment
Cost of compliance to environmental legislation
Environmental protection legislation / guidelines

62

ImpactAnnex II – Competitiveness survey results
Total manufacturing
Quality

Hum an Resources

Im pact

Availabilit y of unskilled labour
Availabilit y of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial st af f
Wage rat es
Unit labour cost / output per worker
Vocational / indust ry relat ed t raining f acilit yWork ethic of labour f orce

Other Resources
Availabilit y of suit able land
Wat er supply (availabilit y and reliabilit y)
Semi-processed mat erials
Raw mat erials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product inf ormat ion
Availability of capit al
Cost of capit al
Project development and f inancing support
Access t o f inanceTelecommunication services
Elect ricit y cost & reliabilit yRoad and rail net work
Air t ransport net work
Sea transport net work and access to harbour facilit ies
Recreat ional facilit ies
Social Inf rast ruct ure (M edical f acilit ies, schools, et c)

Dem and Conditions
Size of t he domest ic market
Export opport unit ies (Af rica and M iddle East )Export opport unit ies (Other)St ruct ure of domestic demand (consumer sophistication et c.)Levels of market diff erent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logist ics
Cold st orage and t ransport facilit ies
Corporate f inancial services
Prof essional services
Availabilit y of domest ic suppliers
Dependence on import s
Linkages t o t echnology
Access t o inf ormat ion
Exchange of research
Joint problem solving
M arket and product inf ormat ion
Af ter sales service
Sub-contract ors
Value chain co-operat ion (share crit ical act ivities)
Co-operation and cont act wit h suppliers
Co-operat ion and contact with client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incentives
Quality of mat erial input s
Qualit y of f inal product f or domestic consumpt ion
Qualit y of f inal product f or export
Cost of compliance t o st andards
Pollut ant s in the product ion environment
Cost of compliance t o environment al legislat ion
Environment al prot ection legislation / guidelines
0%

20%

40%

60%

80%

100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
Neut ral

Very poor

Poor

Fair

Good

Very good

No response

63

Posit ive

Very positive

No response

Food processing industry
Quality

Im pact

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very poor
Poor
Fair

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
Neut ral

Hum an Resources
Availabilit y of unskilled labour
Availabilit y of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial st af f
Wage rat es
Unit labour cost / output per worker
Vocational / indust ry relat ed t raining f acilit yWork ethic of labour f orce

Other Resources
Availabilit y of suit able land
Wat er supply (availabilit y and reliabilit y)
Semi-processed mat erials
Raw mat erials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product inf ormat ion
Availability of capit al
Cost of capit al
Project development and f inancing support
Access t o f inanceTelecommunication services
Elect ricit y cost & reliabilit yRoad and rail net work
Air t ransport net work
Sea transport net work and access to harbour facilit ies
Recreat ional facilit ies
Social Inf rast ruct ure (M edical f acilit ies, schools, et c)

Dem and Conditions
Size of t he domest ic market
Export opport unit ies (Af rica and M iddle East )Export opport unit ies (Other)St ruct ure of domestic demand (consumer sophistication et c.)Levels of market diff erent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logist ics
Cold st orage and t ransport facilit ies
Corporate f inancial services
Prof essional services
Availabilit y of domest ic suppliers
Dependence on import s
Linkages t o t echnology
Access t o inf ormat ion
Exchange of research
Joint problem solving
M arket and product inf ormat ion
Af ter sales service
Sub-contract ors
Value chain co-operat ion (share crit ical act ivities)
Co-operation and cont act wit h suppliers
Co-operat ion and contact with client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incentives
Quality of mat erial input s
Qualit y of f inal product f or domestic consumpt ion
Qualit y of f inal product f or export
Cost of compliance t o st andards
Pollut ant s in the product ion environment
Cost of compliance t o environment al legislat ion
Environment al prot ection legislation / guidelines

Good

Very good64

No response

Posit ive

Very positive

No responseTextile industry
Quality

Hum an Resources

Im pact

Availabilit y of unskilled labour
Availabilit y of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial st af f
Wage rat es
Unit labour cost / output per worker
Vocational / indust ry relat ed t raining f acilit yWork ethic of labour f orce

Other Resources
Availabilit y of suit able land
Wat er supply (availabilit y and reliabilit y)
Semi-processed mat erials
Raw mat erials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product inf ormat ion
Availability of capit al
Cost of capit al
Project development and f inancing support
Access t o f inanceTelecommunication services
Elect ricit y cost & reliabilit yRoad and rail net work
Air t ransport net work
Sea transport net work and access to harbour facilit ies
Recreat ional facilit ies
Social Inf rast ruct ure (M edical f acilit ies, schools, et c)

Dem and Conditions
Size of t he domest ic market
Export opport unit ies (Af rica and M iddle East )Export opport unit ies (Other)St ruct ure of domestic demand (consumer sophistication et c.)Levels of market diff erent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logist ics
Cold st orage and t ransport facilit ies
Corporate f inancial services
Prof essional services
Availabilit y of domest ic suppliers
Dependence on import s
Linkages t o t echnology
Access t o inf ormat ion
Exchange of research
Joint problem solving
M arket and product inf ormat ion
Af ter sales service
Sub-contract ors
Value chain co-operat ion (share crit ical act ivities)
Co-operation and cont act wit h suppliers
Co-operat ion and contact with client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incentives
Quality of mat erial input s
Qualit y of f inal product f or domestic consumpt ion
Qualit y of f inal product f or export
Cost of compliance t o st andards
Pollut ant s in the product ion environment
Cost of compliance t o environment al legislat ion
Environment al prot ection legislation / guidelines
0%

20%

40%

60%

80%

100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
Neut ral

Very poor

Poor

Fair

Good

Very good

No response

65

Posit ive

Very positive

No response

Clothing industry
Quality

Im pact

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very poor
Poor
Fair

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negative
Negative
NeutralHum an Resources
Availability of unskilled labour
Availability of artisans
Availability of technically skilled labour
Availability of managerial staff
Wage rates
Unit labour cost / output per worker
Vocational / industry related training facility
Work ethic of labour force

Other Resources
Availability of suitable land
Water supply (availability and reliability)
Semi-processed materials
Raw materials
Research facilities , resources and support services
Trade and business association support
M arket and product information
Availability of capital
Cost of capital
Project development and financing support
Access to financeTelecommunication services
Electricity cost & reliability
Road and rail network
Air transport network
Sea transport network and access to harbour facilities
Recreational facilities
Social Infrastructure (M edical facilities, schools, etc)

Dem and Conditions
Size of the domestic market
Export opportunities (Africa and M iddle East)
Export opportunities (Other)
Structure of domestic demand (consumer sophistication etc.)
Levels of market differentiation and saturation
Government demand
Population growth
HIV/Aids

Related and Supporting Industries
Trade and business association support
Transport logistics
Cold storage and transport facilities
Corporate financial services
Professional services
Availability of domestic suppliers
Dependence on imports
Linkages to technology
Access to information
Exchange of research
Joint problem solving
M arket and product information
After sales service
Sub-contractors
Value chain co-operation (share critical activities)
Co-operation and contact with suppliers
Co-operation and contact with clients
Co-operation and contact with competitors
Co-operation and contact with government
Employee performance incentives
Quality of material inputs
Quality of final product for domestic consumption
Quality of final product for export
Cost of compliance to standards
Pollutants in the production environment
Cost of compliance to environmental legislation
Environmental protection legislation / guidelines

Good

Very good66

No response

Positive

Very positive

No response

Leather and footwear industry
Quality

Im pact

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very poor
Poor
Fair

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
NeutralHum an Resources
Availabilit y of unskilled labour
Availability of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial staf f
Wage rates
Unit labour cost / out put per worker
Vocational / industry relat ed t raining facilit yWork ethic of labour f orce

Other Resources
Availabilit y of suitable land
Wat er supply (availabilit y and reliabilit y)
Semi-processed materials
Raw materials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product informat ion
Availabilit y of capit al
Cost of capit al
Project development and f inancing support
Access to f inanceTelecommunication services
Electricit y cost & reliabilit yRoad and rail net work
Air t ransport network
Sea t ransport net work and access to harbour f acilities
Recreat ional f acilities
Social Inf rast ruct ure (M edical facilit ies, schools, et c)

Dem and Conditions
Size of t he domestic market
Export opportunities (Africa and M iddle East )Export opport unit ies (Ot her)St ruct ure of domestic demand (consumer sophist icat ion etc.)
Levels of market dif ferent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logistics
Cold st orage and t ransport f acilities
Corporate f inancial services
Prof essional services
Availabilit y of domestic suppliers
Dependence on import s
Linkages t o t echnology
Access t o informat ion
Exchange of research
Joint problem solving
M arket and product informat ion
Af ter sales service
Sub-cont ract ors
Value chain co-operation (share crit ical act ivit ies)
Co-operat ion and cont act wit h suppliers
Co-operat ion and cont act wit h client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incent ives
Qualit y of mat erial input s
Quality of f inal product f or domestic consumpt ion
Quality of f inal product f or export
Cost of compliance to st andards
Pollutants in t he production environment
Cost of compliance t o environment al legislat ion
Environment al prot ect ion legislation / guidelines

Good

Very good67

No response

Positive

Very posit ive

No response

Wood and paper industry
Quality

Im pact

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very poor
Poor
Fair

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
Neut ral

Hum an Resources
Availabilit y of unskilled labour
Availabilit y of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial st af f
Wage rat es
Unit labour cost / output per worker
Vocational / indust ry relat ed t raining f acilit yWork ethic of labour f orce

Other Resources
Availabilit y of suit able land
Wat er supply (availabilit y and reliabilit y)
Semi-processed mat erials
Raw mat erials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product inf ormat ion
Availability of capit al
Cost of capit al
Project development and f inancing support
Access t o f inanceTelecommunication services
Elect ricit y cost & reliabilit yRoad and rail net work
Air t ransport net work
Sea transport net work and access to harbour facilit ies
Recreat ional facilit ies
Social Inf rast ruct ure (M edical f acilit ies, schools, et c)

Dem and Conditions
Size of t he domest ic market
Export opport unit ies (Af rica and M iddle East )Export opport unit ies (Other)St ruct ure of domestic demand (consumer sophistication et c.)Levels of market diff erent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logist ics
Cold st orage and t ransport facilit ies
Corporate f inancial services
Prof essional services
Availabilit y of domest ic suppliers
Dependence on import s
Linkages t o t echnology
Access t o inf ormat ion
Exchange of research
Joint problem solving
M arket and product inf ormat ion
Af ter sales service
Sub-contract ors
Value chain co-operat ion (share crit ical act ivities)
Co-operation and cont act wit h suppliers
Co-operat ion and contact with client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incentives
Quality of mat erial input s
Qualit y of f inal product f or domestic consumpt ion
Qualit y of f inal product f or export
Cost of compliance t o st andards
Pollut ant s in the product ion environment
Cost of compliance t o environment al legislat ion
Environment al prot ection legislation / guidelines

Good

Very good68

No response

Posit ive

Very positive

No responseChemical industry
Quality

Im pact

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very poor
Poor
Fair

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
NeutralHum an Resources
Availabilit y of unskilled labour
Availability of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial staf f
Wage rates
Unit labour cost / out put per worker
Vocational / industry relat ed t raining facilit yWork ethic of labour f orce

Other Resources
Availabilit y of suitable land
Wat er supply (availabilit y and reliabilit y)
Semi-processed materials
Raw materials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product informat ion
Availabilit y of capit al
Cost of capit al
Project development and f inancing support
Access to f inanceTelecommunication services
Electricit y cost & reliabilit yRoad and rail net work
Air t ransport network
Sea t ransport net work and access to harbour f acilities
Recreat ional f acilities
Social Inf rast ruct ure (M edical facilit ies, schools, et c)

Dem and Conditions
Size of t he domestic market
Export opportunities (Africa and M iddle East )Export opport unit ies (Ot her)St ruct ure of domestic demand (consumer sophist icat ion etc.)
Levels of market dif ferent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logistics
Cold st orage and t ransport f acilities
Corporate f inancial services
Prof essional services
Availabilit y of domestic suppliers
Dependence on import s
Linkages t o t echnology
Access t o informat ion
Exchange of research
Joint problem solving
M arket and product informat ion
Af ter sales service
Sub-cont ract ors
Value chain co-operation (share crit ical act ivit ies)
Co-operat ion and cont act wit h suppliers
Co-operat ion and cont act wit h client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incent ives
Qualit y of mat erial input s
Quality of f inal product f or domestic consumpt ion
Quality of f inal product f or export
Cost of compliance to st andards
Pollutants in t he production environment
Cost of compliance t o environment al legislat ion
Environment al prot ect ion legislation / guidelines

Good

Very good69

No response

Positive

Very posit ive

No responseNon-metallic mineral industry
Quality

Hum an Resources

Im pact

Availabilit y of unskilled labour
Availabilit y of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial st af f
Wage rat es
Unit labour cost / output per worker
Vocational / indust ry relat ed t raining f acilit yWork ethic of labour f orce

Other Resources
Availabilit y of suit able land
Wat er supply (availabilit y and reliabilit y)
Semi-processed mat erials
Raw mat erials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product inf ormat ion
Availability of capit al
Cost of capit al
Project development and f inancing support
Access t o f inanceTelecommunication services
Elect ricit y cost & reliabilit yRoad and rail net work
Air t ransport net work
Sea transport net work and access to harbour facilit ies
Recreat ional facilit ies
Social Inf rast ruct ure (M edical f acilit ies, schools, et c)

Dem and Conditions
Size of t he domest ic market
Export opport unit ies (Af rica and M iddle East )Export opport unit ies (Other)St ruct ure of domestic demand (consumer sophistication et c.)Levels of market diff erent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logist ics
Cold st orage and t ransport facilit ies
Corporate f inancial services
Prof essional services
Availabilit y of domest ic suppliers
Dependence on import s
Linkages t o t echnology
Access t o inf ormat ion
Exchange of research
Joint problem solving
M arket and product inf ormat ion
Af ter sales service
Sub-contract ors
Value chain co-operat ion (share crit ical act ivities)
Co-operation and cont act wit h suppliers
Co-operat ion and contact with client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incentives
Quality of mat erial input s
Qualit y of f inal product f or domestic consumpt ion
Qualit y of f inal product f or export
Cost of compliance t o st andards
Pollut ant s in the product ion environment
Cost of compliance t o environment al legislat ion
Environment al prot ection legislation / guidelines
0%

20%

40%

60%

80%

100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
Neut ral

Very poor

Poor

Fair

Good

Very good

No response70

Posit ive

Very positive

No response

Basic metal product industry
Quality

Im pact

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very poor
Poor
Fair

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Very negat ive
Negat ive
NeutralHum an Resources
Availabilit y of unskilled labour
Availability of art isans
Availabilit y of t echnically skilled labour
Availabilit y of managerial staf f
Wage rates
Unit labour cost / out put per worker
Vocational / industry relat ed t raining facilit yWork ethic of labour f orce

Other Resources
Availabilit y of suitable land
Wat er supply (availabilit y and reliabilit y)
Semi-processed materials
Raw materials
Research f acilit ies , resources and support services
Trade and business association support
M arket and product informat ion
Availabilit y of capit al
Cost of capit al
Project development and f inancing support
Access to f inanceTelecommunication services
Electricit y cost & reliabilit yRoad and rail net work
Air t ransport network
Sea t ransport net work and access to harbour f acilities
Recreat ional f acilities
Social Inf rast ruct ure (M edical facilit ies, schools, et c)

Dem and Conditions
Size of t he domestic market
Export opportunities (Africa and M iddle East )Export opport unit ies (Ot her)St ruct ure of domestic demand (consumer sophist icat ion etc.)
Levels of market dif ferent iat ion and sat urat ion
Government demand
Populat ion growt hHIV/ Aids

Related and Supporting Industries
Trade and business association support
Transport logistics
Cold st orage and t ransport f acilities
Corporate f inancial services
Prof essional services
Availabilit y of domestic suppliers
Dependence on import s
Linkages t o t echnology
Access t o informat ion
Exchange of research
Joint problem solving
M arket and product informat ion
Af ter sales service
Sub-cont ract ors
Value chain co-operation (share crit ical act ivit ies)
Co-operat ion and cont act wit h suppliers
Co-operat ion and cont act wit h client s
Co-operat ion and cont act wit h compet it ors
Co-operat ion and cont act wit h government
Employee performance incent ives
Qualit y of mat erial input s
Quality of f inal product f or domestic consumpt ion
Quality of f inal product f or export
Cost of compliance to st andards
Pollutants in t he production environment
Cost of compliance t o environment al legislat ion
Environment al prot ect ion legislation / guidelines

Good

Very good71

No response

Positive

Very posit ive

No response

Annex III - References
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74