HomeReportsBureau of Economic and Business Affairs2017 Investment Climate Statements...Eritrea

# 					2017 Investment Climate Statements: Eritrea			

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													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

The investment climate in Eritrea is not conducive to U.S. investment, because the policies maintained by the Government of the State of Eritrea (GSE) are not conducive to foreign investment. Specifically, the GSE has a history of making statements hostile towards the free market, privately owned enterprises and the influence of the U.S. Government on the Eritrean economy.

Eritrea, under President Isaias Afwerki, who heads a one-party government and rules the country by presidential decrees, follows a policy of national self-reliance. Despite its strategic location on the Horn of Africa, where it shares borders with Sudan, Ethiopia, and Djibouti, Eritrea is one of the most secretive and isolated states in the world. Most enterprises are state controlled or run by the sole political party, the Peoples Front for Democracy and Justice (PFDJ). The GSE is the largest employer in the country and most citizens must complete a national service obligation, often an indefinite term at very low wages in public sector positions. The national currency, Eritrean Nakfa, is not convertible and there are restrictions on the repatriation of profits. The national budget is not public and the judiciary is not independent and lacks transparency. There is no freedom of the press and the government maintains complete control of the media. The U.S. Embassy has been denied consular access to American citizens detained by Eritrean authorities, emblematic of the GSE’s uncooperative and reticent attitude.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Towards Foreign Direct Investment**

The GSE prioritizes self-reliance and its hostility towards the free-market economic policies of most of the world’s largest capital-providing nations makes it generally unreceptive to FDI.

The policies and practices of the GSE discriminate against foreign investors by prohibiting foreign investment in all but a few sectors, where officials of the ruling PFDJ political party have specifically decided to allow foreign investment, such as mining where the government maintains a stake in all investments. While no sectors of the economy can be described as open to FDI, the GSE has permitted Italian investments in textiles and housing construction, small Russian and Australian investments in mining, and Chinese investments in mining and housing construction.

The Investment Center operates directly under the Office of the President and there is no transparency in its activities. In the past, the Center has conducted public activities to encourage members of the Eritrean diaspora to invest in Eritrea. The Center has not conducted a large public event since 2012 and the senior officials of the Center have recently stated that the time for investments is not appropriate because investment developments must follow political developments.

While there is no business ombudsman in Eritrea, retaining the small number of foreign investors in Eritrea is both a political and economy priority for the GSE.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

In practice, there is no right for either foreign or domestic private entities to establish or own business enterprises. All sectors of the economy are tightly controlled by the GSE and most large enterprises are either entirely or partially owned by the government or the ruling political party.

There are both statutory and de facto limits on foreign ownership and control of enterprises.

Outright prohibitions on investment are the rule rather than the exception in Eritrea. There are only four types of large foreign investment in Eritrea: 1) mines, construction companies and other businesses operated by Chinese enterprises, 2) textile facilities operated by Italian owners, 3) a mining facility operated by a Canadian company, and 4) infrastructure projects built by the UAE and other Gulf States. Most of these enterprises are operating under agreements negotiated directly between the companies or countries and a small group of officials from the GSE and the ruling political party.

There is no transparent GSE screening mechanism for approving inbound foreign investment.

**Other Investment Policy Reviews**

The GSE has undergone no recent third-party investment policy review.

**Business Facilitation**

While the GSE allows small-scale businesses such as retail services to operate, even these small businesses are closely regulated by the government and most large enterprises are directly controlled by the GSE, the PFDJ, or jointly controlled by the GSE/PFDJ and foreign companies or governments, under agreements negotiated directly with the GSE.

There is no business registration website in Eritrea. Eritrea is ranked 189th out 190 countries in the current World Bank Ease of Doing Business Ranking.

**Outward Investment**

Given the low level of capital accumulation in the economy, Eritrea is not a likely provider of foreign capital. The only obvious avenues for outward investment from Eritrea are in small businesses in countries such as South Sudan, Uganda, and Angola.

The GSE’s laws strictly control capital flows, currency exchange, and restricts domestic investors from making large investments abroad.

							2. Bilateral Investment Agreements and Taxation Treaties					

The GSE has signed Bilateral Investment Treaties (BITs) with Italy, Netherlands, Qatar, and Uganda. Only the BIT with Italy has entered into force.

The GSE has no bilateral taxation treaty with the U.S.

							3. Legal Regime					

**Transparency of the Regulatory System**

The World Bank rates Eritrea a 0 on a scale of 0-6 for transparency on publishing or consulting with the public about proposed regulations. This low ranking is indicative of the lack of transparency in GSE’s legal and regulatory systems.

There are no independent nongovernmental organizations or private sector associations that manage regulatory processes in Eritrea. As such, all rule-making and regulatory authority resides within the PFDJ and with the President.

Accounting and regulatory procedures are not transparent. Draft bills and regulations are not made available for public comment. There is no centralized online location where key regulatory actions are published. In addition, there is no centralized online location where key regulatory actions or there summaries are published. There is no transparency about how the GSE enforces the rules for its administrative processes.

There is no transparency about the process for developing new regulations. Enforcement processes in Eritrea are not legally reviewable and the enforcement mechanisms are not transparent. The GSE does not release public information about the conduct of any scientific studies or quantitative analysis conducted on the impact of regulations.

No new regulatory systems or enforcement reforms have been announced in the past year.

**International Regulatory Considerations**

Eritrea is not a part of any regional economic blocks, nor is it a member of the World Trade Organization (WTO).

**Legal System and Judicial Independence**

In theory, the Eritrean legal system is based on the legal system in Ethiopia, which was used prior to gaining independence from Ethiopia. However, in practice, the legal system is a combination of traditional village law, the old Ethiopian legal code, and Presidential Decrees.

Eritrea has a written civil code that addresses issues such as property and contracts, however there are no specialized courts for commercial cases.

The Eritrean courts are not independent of the Presidency. The civil courts lack transparency, so it is difficult to access their fairness, however they lack trained competent judges and administrators. The criminal court system in Eritrea regularly disregards due process, transparency, fairness, and reliability.

**Laws and Regulations on Foreign Direct Investment**

Eritrea’s legal system plays only a minor role in foreign direct investment. All large scale foreign direct investment is part of a political process and is managed by agreements negotiated directly with a small group of officials in the ruling party.

Eritrea has no “one-stop-shop” website for investment that provides relevant laws rules, procedures and reporting requirements for investors.

There have been no new major laws, regulations, or judicial decisions announced in the past year.

**Competition and Anti-Trust Laws**

There are no indications that the GSE makes any effort to promote market competition. All large-scale economic activity is controlled directly by the GSE or by jointly-controlled international companies operating under agreements negotiated directly with the GSE/PFDJ.

**Expropriation and Compensation**

There is no transparent process that would allow an individual or company to appeal any GSE expropriation of property.

In recent years, the GSE has destroyed homes that it stated were built without government permission. In the past, there have also been cases in which the GSE has expropriated property owned by citizens of Italy. Due to lack of transparency, it is impossible to determine the number of individual cases of expropriations of property from Eritreans or citizens of other countries.

In the case of several of the houses destroyed by the GSE, there were also reports of public protest against the destruction of the houses.

**Dispute Settlement**

*ICSID Convention and New York Convention*

Eritrea is not a member of the International Centre for Settlement of Investment Disputes (ICSID) Convention.

*Investor-State Dispute Settlement*

Eritrea is not a signatory to a treaty or investment agreement in which binding international arbitration is recognized. Eritrea has no BIT with an investment chapter with the United States.

Due to a lack of transparency it is impossible to determine the number of investment disputes involving U.S. persons or foreign investors. However because of the minimal level of foreign investment, the number of disputes is presumably also very small.

Local Eritrean courts do not recognize or enforce foreign arbitral awards issued against the GSE.

*International Commercial Arbitration and Foreign Courts*

Some disputes between private parties are settled in traditional village courts. There is no independent, domestic arbitration body in Eritrea.

The local courts do not recognize or enforce foreign arbitral awards, nor do they recognize or enforce judgements of foreign courts.

Due to lack of transparency it is impossible to determine if state-owned enterprises (SOEs) have been involved in investment disputes, and if so, what actions if any were taken by the courts.

**Bankruptcy Regulations**

Bankruptcy is addressed in the Eritrean Civil Code, however due to lack of transparency in the court system, it is impossible to determine what rights, if any, creditors, shareholders and holders of other financial contracts have in practice.

							4. Industrial Policies					

**Investment Incentives**

Any investment incentives offered to foreign investors, if they exist, have been negotiated directly between a small group of GSE officials and foreign governments or companies. There are no incentives transparently offered to all foreign investors.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

There are two designated Free Trade Zones in Eritrea: 1) The Free Trade Zone in the port city of Massawa, and 2) the Free Trade Zone along the common border between Eritrea and Sudan. However, the best information available to date indicates that the FTZs have not begun to function.

**Performance and Data Localization Requirements**

The GSE does not apply this mandate for local employment to senior management and boards of directors. However, in certain cases the GSE has required the large Canadian and Chinese mining operations in Eritrea to employ local workers.

The GRE tightly controls individual entry visas for most foreigners and the individual permits required for foreigners to travel within Eritrea.

All large investments in Eritrea have been permitted only with the approval of a small group of officials within the GSE/PFDJ.

Most of the large foreign enterprises in Eritrea use large amounts of non-domestic goods and technology. However, due to a lack of transparency, it is impossible to determine if under their agreements with the GSE/PFDJ, they are encouraged or required to use some minimal amounts of local goods or technology.

There are no public or transparent procedures for establishing performance requirements for domestic or foreign enterprises.

In Eritrea, there are no requirements for foreign IT providers to turn over source code and/or provide access to encryption. The lack of high-speed internet and cellphone data infrastructure impede data transfer from Eritrea, but there are no publically-stated policies that impede data transmission. There are no publically-stated rules on local data storage.

							5. Protection of Property Rights					

**Real Property**

All real property in Eritrea is technically owned by the GSE. Due to the lack of transparency in the GSE and the court system, it is difficult to assess the enforcement of property rights and interests in Eritrea.

Under Eritrean law, all real property belongs to the GSE and any significant amount of land acquired/leased by a foreign resident or investor would be subject to the approval of a small group of officials in the GSE.

In theory, the title to all land is clear because, all real property belongs to the state and private Eritrean citizens acquire only the right to use the land. Squatters obtain no legal rights to land.

**Intellectual Property Rights**

Under Eritrean law intellectual property (IP) rights are addressed in the Copyright section of the Civil Code. Due to a lack of transparency in the GSE and the court system, it is difficult to determine if and how IP rights are being protected in practice.

In January 2017, the GSE issued a new proclamation on IP enforcement. The stated intent of the proclamation was to clarify the rights of Eritrean musical artists. The lack of transparency about the enforcement of all Eritrean laws and regulation makes it difficult to determine if and how the new proclamation will improve or hinder the protection of IP rights.

Eritrea does not track or report on seizures of counterfeit goods.

Eritrea is not listed in the USTR’s Special 301 report, nor is it listed in the notorious markets report. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en /.

The Embassy Political Officer or Consular officer can provide a list of Eritrean lawyers. There are no local lawyers specializing in the field of Intellectual Property Rights.

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

There is no functioning public market for capital in Eritrea, nor is there an established stock market.

The banking and financial sectors are controlled entirely by the GSE and there are no transparent mechanisms to facilitate the free flow of financial resources into product and factor markets.

The GSE does not respect the International Monetary Fund’s (IMP) Article VIII, regarding restrictions on payments and transfers for international transactions.

The banking sector is operated entirely by the GSE and there is no transparency in decisions regarding credit allocation.

**Money and Banking System**

All banks in Eritrea are operated by the GSE. Most individuals and small businesses use banking services infrequently. There are no ATMs in the country and credit cards are rarely used. In 2015 and 2016, many Eritreans began using checking accounts for the first time, after the GSE placed a monthly limit on the total amount of cash that an individual can withdraw from the bank and mandated the use of checks for large financial transactions.

The banking sector is entirely owned and operated by the GSE, due to lack of transparency, it is difficult to determine how healthy the system is. The GSE provides no public information about the assets of the banking sector, the value of which is unknown.

The Bank of Eritrea acts as the central bank, and is controlled directly by the ruling political party. Foreign banks are not permitted to operate in Eritrea.

**Foreign Exchange and Remittances**

*Foreign Exchange*

The Eritrean Nakfa cannot be freely or easily converted into other world currencies. The total amount of currency available to an individual or business is tightly controlled by the GSE.

Fixed currency exchange rates are established by GSE.

*Remittance Policies*

There have been no changes in the past year investment remittance policies. The GSE is not transparent about its plans for changes in the future.

The GSE strictly controls all remittances from Eritrea. In recent years several large foreign enterprises have found it impossible to remit income to their home countries.

**Sovereign Wealth Funds**

There is no Sovereign Wealth Fund in Eritrea

							7. State-Owned Enterprises					

Most large enterprises in all sectors of the economy are owned and operated by the GSE or the PFDJ, or are jointly operated with the GSE under an agreement with a foreign country or company.

There is no published list of SOEs in Eritrea and all SOEs are effectively insulated from market competition.

**Privatization Program**

The GSE has not implemented any privatization program, nor is there any indication that the government plans to do so in the future.

							8. Responsible Business Conduct					

Most large enterprises in Eritrea are operated directly or jointly by the GSE and there is no general awareness of responsible business conduct (RBC). Due to lack of transparency it is unknown if the GSE has taken any measures to encourage RBC, if they have, these efforts are not well-publicized.

In currently pending legal cases, Eritrean former employees of a Canadian mining company operating in Eritrea, who are now living outside of Eritrea, have filed lawsuits against the company for alleged violations of their human rights, including claims of forced labor. According to numerous reports from international NGOs, the United Nations, and the U.S. Government, the GSE does not fairly and effectively enforce its domestic laws in relation to human rights, labor rights, consumer protection and environmental protections.

There are no public capital markets inside of Eritrea and only a small number of publically traded companies operate inside of Eritrea. Due to lack of transparency it is impossible to determine if the GSE has established any standard of corporate governance, accounting and executive compensation to protect shareholders.

There are no independent NGOs, investment funds, worker organizations, unions or business associations promoting or monitoring RBC in Eritrea.

Due to lack of transparency it is impossible to determine if the GSE encourages adherence to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. Individual mining companies participate in programs such as the Voluntary Principles on Security and Human Rights, but this participation is not mandated by the GSE.

							9. Corruption					

Eritrean laws criminalize corruption by public officials, and there are no exceptions made for family members of officials, however, due to limited transparency within the government, it is unclear the extent to which the GSE applies these laws.

Eritrea’s has no specific laws to counter conflict-of-interest in awarding contracts. The laws against corruption could apply to conflict-of-interest cases, however there is no independent court system and most large enterprises are under the control of the government. According to Transparency International’s 2016 Corruption Perception Index, Eritrea ranks 164th of 176 countries worldwide.

There is no available information to suggest that the GSE requires private companies to establish internal codes that prohibit bribery of public officials, and it is unlikely that the government does so.

There are only a small number of large private companies operating in Eritrea. It is likely that foreign firms, specifically the Canadian, Italian and Chinese companies that operate in the country, use some internal controls to detect bribery of government officials. However, the extent to which these companies follow practices to prevent bribery of government officials is unknown.

Eritrea is not a participant in any local or international anti-corruption initiatives. In addition, the country prohibits the operation of almost all NGOs, leaving no watchdog organization able to monitor the prevalence of corruption.

*Resources to Report Corruption*

There are no government agencies that operate independently of the Office of the President and the PFDJ. Nor are there independent “watchdog” organizations working within Eritrea.

							10. Political and Security Environment					

While in recent years there have been several reports of groups of soldiers or conscripts protesting their forced conscription or the conditions of military service, there is no history of frequent civil disturbances or politically motivated violence.

In 2015, there were public reports that a Canadian operated mine in Eritrea was damaged by explosions caused by either bombs or mortars. The mine continued to operate and there were conflicting accounts of who was responsible for the explosion(s).

The environment in the country has been highly politicized and insecure since the country gained independence and particularly since the 1998 Border War with Ethiopia.

							11. Labor Policies and Practices					

The most important factor influencing the labor market in Eritrea is the GSE’s policy of requiring an indefinite term of National Service for virtually all Eritrean citizens. The GSE is by far the largest employer in the economy and all university graduates require a release from National Service before they can legally pursue other employment opportunities. The GSE’s policy of indefinite National Service has been intensely criticized by the United Nations, independent human rights NGOs, and the USG.

While there are shortages of specialized skilled labor in many sectors of the economy, particularly in the areas of administration, the international mining facilities currently operating in Eritrea are largely able to find sufficient numbers of workers with the required basic technical skills.

According to the GSE’s stated policy, the large Canadian and Chinese mining facilities that are currently operating in Eritrea are required to hire Eritrean workers wherever possible and to offer training programs for Eritrean workers.

Most large employers in Eritrea are operated directly by the GSE/PFDJ or under agreements negotiated directly with a small group of GSE officials. It appears that they operate according to Eritrean labor laws, but as there are no independent courts, unions, monitoring agencies, NGOs or press, it is difficult to determine the extent to which the government’s policies and laws are applied in practice.

The few large foreign investments in the country have all been negotiated directly with a small group of officials within the GSE and the PFDJ, who are also control the development and enforcement of labor laws.

There are no independent labor organizations in Eritrea and no collective bargaining. In addition, there is no independent labor dispute resolution mechanism in Eritrea.

There have been no labor protests or strikes during the past year, nor have there been any indications that the government plans to pass new labor laws or regulations in the future.

							12. OPIC and Other Investment Insurance Programs					

OPIC has been authorized to operate in Eritrea since 1994, however it does not have any ongoing or current projects in the country.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

*Table 3: Sources and Destination of FDI*

The IMF reported no recent data on economic activity in Eritrea. The Government of the State of Eritrea produces no public data on investments.

*This information is based on the U.S. Embassy’s assessment of media reporting, and observations of travel patterns of Eritrean citizens.

*Table 4: Sources of Portfolio Investment*

Data not available.

							14. Contact for More Information					

Michael VeasyDeputy Chief of MissionU.S. Embassy Asmara291-1-120004 ext. 2116VeasyMA@state.gov

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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