Eritrea Economic Outlook

Growth was high in 2011 because of investment in mining but it is unlikely to be maintained in the near future.
The economy is affected by national security considerations, drought and the impact on remittances of the global financial crisis.
There are huge problems in creating jobs for the large population of young people.

Economic growth was strong in 2011 because of substantial investment in mining projects, in particular the Bisha gold mine. This mine and the output from silver, copper and zinc mines are expected to be the major sources of growth in 2012 and 2013. However, growth in the near future is unlikely to be as high as it was in 2011 because mineral prices are expected to fall. The high budget deficit in 2011 is expected to improve further in both 2012 and 2013. In 2011 inflation was estimated to be in double figures. It is expected to decline slightly as a result of improvements expected in agricultural production but will remain high. The current account improved in 2011 because of the higher earnings from mineral exports. Eritrea is expected to maintain a small current account surplus in the medium term, especially if gold prices remain stable. For the future, the country’s policy on issues of regional security, especially the relationship with its large neighbour, Ethiopia, could force it to maintain a large military infrastructure. The threat of famine and food insecurity; the discovery of substantial mineral deposits in parts of the country; the large foreign investment into their exploitation; and the relationship of the country with the international community including China will determine the extent to which the high growth witnessed in 2011 will be maintained.

Eritrea has a large population of young people and the creation of job opportunities for them is a major challenge. The government has put emphasis on the expansion of higher education but it is not clear if it is accompanied by a strategy that will guarantee jobs for most of the graduates.