Date: Thu, 30 Jan 2014 23:30:12 +0100
Eight Business benefits of resuming economic relations between Ethiopia and
Eritrea - By Tony Carroll
Posted on
<http://africanarguments.org/2014/01/30/eight-business-benefits-of-resuming-
economic-relations-between-ethiopia-and-eritrea-by-tony-carroll/> January
30, 2014
<http://africanarguments.org/wp-content/uploads/2014/01/Carroll.jpg>
CarrollEthiopia and Eritrea ceased business relations upon the commencement
of the border war in 1998. While a small amount of barter trade still
exists, it is fair to say that trade relations between the two countries are
non-existent - this is very much to the detriment of the private sectors in
both countries (and across the region).
Since the closure of the border, the economic fortunes of Ethiopia and
Eritrea could hardly have been more divergent. While both remain poor
countries in terms of per capita wealth, Ethiopia has been among the fastest
and growing countries in the world averaging a steady 10% per annum growth
for the past nine years. Conversely, as per the chart below, Eritrea has
suffered vast fluctuations in its economic growth from a low of - 9% in 2008
to the 2012 level of + 7.5%.
GDP Growth over the years (
<http://www.gfmag.com/gdp-data-country-reports/277-eritrea-gdp-country-repor
t.html> "Eritrea Country Report." Global Finance).
Year
Real GDP Growth in Percentage
2001
8.8
2002
3
2003
-2.7
2004
1.5
2005
2.6
2006
-1
2007
1.4
2008
-9.8
2009
3.9
2010
2.2
2011
8.7
2012
7.5
Ethiopia has also been a leader in Africa in terms of infrastructure
development, especially in the construction of roads, power infrastructure
and water supply. Eritrea has endeavoured to rebuild its transportation
infrastructure after the border war but progress has been slowed by
inaccessibility of finance. In terms of education, Ethiopia has built
dozens of institutions of higher education in the past 10 years and has
begun to develop a work force that is increasingly in demand by
manufacturers from Turkey, China and India. Despite promising signs of self
reliance immediately after Independence, Eritrea continues to find its work
force diminished due to emigration and military service.
Last, Ethiopia is rapidly modernizing its domestic and export agriculture
whereas as Eritrea still relies on subsistence methods of production -
albeit while eschewing food aid.
As a business consultant who has worked on investment in both countries, I
am confident that a comprehensive settlement of disputes that underlie the
1998-2000 border war and normalization of economic relations will create
myriad benefits, including:
1. Increase in road, rail and port infrastructure in Eritrea. With
assistance from the Chinese, Ethiopia has expended billions on building its
transportation corridor to Djibouti. However, for many regions in Ethiopia,
Eritrean ports are closer.
2. Increase in power infrastructure and opening of export markets. By
combining their respective sources of power, hydroelectric, wind and
geothermal, Eritrean and Ethiopian consumers would benefit from lower costs
and greater reliability of supply.
3. Reduced power and transport costs would increase manufacturing
investment in both Ethiopia and Eritrea. Although Ethiopia remains one of
the world's most expensive countries in terms of road transportation costs,
there have been a swath of new manufacturing ventures in textiles, apparel
and leather goods, driven by low labour costs and increased skill training.
4. With its port access, Eritrea could also become a manufacturing hub,
perhaps even adding strategic value to raw or semi-processed materials
coming from Ethiopia.
5. Renewed access to the US market under the Africa Growth and
Opportunity Act (AGOA). In 2004, Eritrea was deemed ineligible for market
access benefits offered and while the impact was minimal at the time,
Ethiopia has been able to substantially grow its exports to the US in the
past five years. The normalization of political and economic relations with
its neighbour would not in itself restore AGOA eligibility, but it would
demonstrate progress toward that end.
6. Increased convertibility of currencies. Normalization of economic
relations would allow the establishment of banking relations, now
non-existent between the two countries. The Nakfa is among the world's least
convertible currencies and an open and transparent exchange with the
Ethiopian birr could lower transaction costs for all businesses and
consumers.
7. Return of the commercial sector. As a result of the border war,
Ethiopian businesses were expelled from Eritrea and vice versa. This bar has
constrained companies from both countries to achieve scale. Moreover, among
the most dynamic business communities in Ethiopia for generations were those
of Eritrean origin.
8. Fostering regional integration. Africa is striving to integrate its
markets and Ethiopia has been leading in this process by establishing
agreements with its neighbours for power and transportation corridors. There
has been speculation that Ethiopia seeks membership of the East Africa
Community. EAC membership would also provide benefits to Eritrea.
As reported by my friends <http://africanarguments.org/country/eritrea/>
Ambassadors Cohen, Shinn and Lyman, this appears to be a moment of
inflection in the relationship between Eritrea and Ethiopia. Certainly the
implementation of the border agreement and the resumption of commercial
relations will not be an easy process. However, the economic benefits that
would accrue to both countries could be substantial and should motivate
leadership in both to expedite the process.
Tony Carroll is Vice President of Manchester Trade and Director of Acorus
Capital.
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