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AFDB: Eritrea Economic Outlook

Posted by: Semere Asmelash

Date: Thursday, 18 January 2018

Eritrea Economic Outlook

Economic performance and outlook

Eritrea’s economy slowed more sharply than expected due to dwindling economic activities and poor weather conditions that adversely affected agricultural productivity. Real GDP growth declined to an estimated 3.4% in 2017, from 3.8% in 2016, and is projected to remain between 3.7% and 3.8% over the medium term. GDP growth in 2016 and 2017 was driven largely by investment at the Bisha mine. Agriculture, which accounts for 17.2% of GDP, provides most of the population with a livelihood and accounts for about 44% of commodity exports. Over the medium term, the government sees further prospects in improved food production due to investment in masonry dams, additional mining activities, growth in services, and fisheries development.

Macroeconomic evolution

The overall budget deficit (after grants) continued its downward trend. The budget deficit declined to an estimated 13.8% of GDP in 2017, from 14% in 2016, and is projected to drop to 12.4% in 2019. The country’s access to more grants and concessional resources, increasing revenue from mining projects, and control of unproductive expenditures are the main drivers of the decline. Inflation remained at an estimated 9% in 2017, driven by insufficient food supply and scarce foreign currency to finance imports of essential goods. Monetary policy has been geared to maintaining price stability. The broad money supply decreased from 17.5% of GDP in 2010 to 14.3%  in 2014. The drop was attributable to the government’s pursuit of fiscal consolidation and reduction of nonconcessional loans. Public debt was estimated at 105.8% of GDP in 2015, 3 percentage points lower than in 2013. External debt to official creditors, which declined from 41% of GDP in 2010 to 21.9% in 2014, remains above the Sub-Saharan Africa average of 10.5%.

Tailwinds

Low commodity prices for traditional gold and copper exports remain an ongoing challenge. The recent discovery of new gold deposits in commercial quantities will drive medium-term growth. However, weaker global prices for the minerals have provided the government with the opportunity to diversify its economy. Agriculture accounts for about 80% of employment in the rural economy. The government launched an Agriculture Development Agenda that focuses on agricultural value chains and the application of improved inputs to transform the sector. In energy, development partners, particularly the European Union, are investing in renewable energy. The government and the United Nations Development Programme are piloting a wind farm with capacity of 750 kilowatts in the port city of Assab to improve the electricity supply. The diesel power plant in Assab saves $730,000 a year in diesel costs. In transport, the main corridor from Asmara to the ports of Massawa and Assab is being rehabilitated.

Headwinds

The unresolved border issue between Eritrea and Ethiopia, as well as the continued isolation of Eritrea by the international community, has forced the government to adopt inward-looking policies. This situation has hindered regional development in the Horn of Africa. The country’s unattractive business environment, highlighted by its ranking of 189 out of 190 in the World Bank’s 2018 Doing Business report, continues to discourage investment. Eritrea also faces a serious skills gap due to the poor quality of education infrastructure. These problems continue to jeopardize human capital development, thereby constraining long-term inclusive and sustainable economic growth. The dependence on primary commodity exports and imports of food and petroleum products makes the country extremely vulnerable to external shocks.



Source: African Economic Outlook (AEO) 2018

PDF:

https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/African_Economic_Outlook_2018_-_EN.pdf


InvestAdvocate

2018 African Economic Outlook: AfDB makes a compelling case for Africa’s industrialization

Posted by  on January 18, 2018
2018 African Economic Outlook: African Development Bank makes a compelling case for Africa’s industrialization
18/1/2018/AfDB
The President of the African Development Bank, Akinwumi Adesina, has made a compelling case for accelerating Africa’s industrialization in order to create jobs, reduce poverty and promote inclusive economic growth.
Citing data from the Bank’s 2018 African Economic Outlook launched in Abidjan, Côte d’Ivoire, on Wednesday, Adesina said infrastructure projects were among the most profitable investments any society can make as they “significantly contribute to, propel, and sustain a country’s economic growth. Infrastructure, when well managed, provides the financial resources to do everything else.”
Noting that economic diversification is key to resolving many of the continent’s difficulties, he urged African governments to encourage a shift toward labour-intensive industries, especially in rural areas where 70 percent of the continent’s population resides.
“Agriculture must be at the forefront of Africa’s industrialization,” he said, adding that integrated power and adequate transport infrastructure would facilitate economic integration, support agricultural value chain development and economies of scale which drive industrialization.
He reminded the audience of policy-makers and members of the diplomatic corps in Côte d’Ivoire that economic diversification via industrialization with tangible investment in human capital will enable the continent’s rapidly growing youth population to successfully transition to productive technology-based sectors.
Adesina also highlighted the relatively unknown win-win situation that Africa’s industrialization can generate within the developed world, citing data from the report, which notes that “increasing the share of manufacturing in GDP in Africa (and other Less Developing Countries) could boost investment in the G20 by about US $485 billion and household consumption by about US $1.4 trillion.”
The Bank President highlighted various innovative ways in which Africa countries can generate capital for infrastructure development and what the Bank is doing through its ambitious High 5 development agenda to address the issues raised in the report.
He announced that the Bank would organise the Africa Investment Forum on November 7-8, 2018 in Johannesburg, South Africa, to mobilise funds for infrastructure development, to bridge an estimated funding gap of $130-$170 billion a year, up from previous estimates of US $100 billion per year.
New infrastructure financing gap estimates and innovative ways through which African countries can raise funds for infrastructure development are among the highlights of the 2018 edition of the report, which was launched at the Bank’s headquarters for the first time in the publication’s 15-year history.
The Africa Economic Outlook was first published in 2003 and launched mostly in various African capitals outside the Bank’s headquarters in May each year.
In his remarks, Célestin Monga, the Bank’s Chief Economist and Vice-President for Economic Governance and Knowledge Management, said the African Economic Outlook has become the flagship report for the African Development Bank, providing data and reference material on Africa’s development that are of interest to researchers, investors, civil society organizations, development partners and the media.
This year’s edition focuses on macroeconomic development and structural changes in Africa, and outlines economic prospects for 2018. The report emphasizes the need to develop Africa’s infrastructure, and recommends new strategies and innovative financing instruments for countries to consider, depending on levels of development and specific circumstances.
Abebe Shimeles, Acting Director, Macroeconomic Policy, Forecasting and Research, said the Bank will publish Regional Economic Outlooks for Africa’s five sub-regions. The self-contained, independent reports, to be released at the Bank’s Annual Meetings in May 2018, will focus on priority areas of concern for each sub-region and provide analysis of the economic and social landscape, among other key issues.
Participants at the launch session, moderated by the Bank’s Director of Communications and External Relations, Victor Oladokun, included members of the diplomatic community in Côte d’Ivoire, representatives of international organisations and multilateral development banks, civil society and the media.
The African Economic Outlook is produced annually by the African Development Bank. The full report is available in English, French and Portuguese at www.afdb.org/aeo. Official hashtag: #2018AEO

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