Eritrea is a small country located in northeast Africa home to a population of 4.78 million. National independence was obtained in May 1993 from neighbor Ethiopia of which border disputes and tensions remain. A major military conflict with Ethiopia from 1998-2000 greatly impacted Eritrea’s economy with GDP growth contracting by 12 percent in year 2000. At present, 50 percent of Eritrea’s population live in poverty as the majority survive on subsistence agriculture.
Economic Statistics
Total GDP as measured by purchasing power parity stands at $4.47 billion USD with corresponding GDP/Capita at $1,000 USD. GDP as reported by market prices stands at $1.24 billion USD with market GDP at $210 USD (2004). GDP growth rate is estimated at 1.5 percent for 2006, year 2007 at 1.3 percent. Other GDP growth rate quotes include year 2005 at 2 percent, 2003 at 3 percent, year 1999 at zero. Inflation for 2006 is forecasted at 10.9 percent, 2007 at 10 percent. Other inflation quotes have year 2005 at 15 percent, 2000 at 27 percent, 1998 at 9 percent, 1997 at 4 percent. Current account is in deficit at $279 million USD (2005) of which the trade component is in a large deficit at $643 million USD (2005). International reserves are low at $32.6 million USD (2005). No oil & gas production, self-sufficient in electricity production.
CURRENCY: ISO Symbol ‘ERN’, Eritrean nakfa. At time of review on July 10, 2006, the nakfa had an exchange value of 15 ERN to the US-dollar (USD) and/or 18.87 ERN to the Euroland euro (EUR). The valuation is an official exchange rate following a hard peg to the USD, currency pegs are ideal for those monetary systems with a history of instability. The peg has led to a dual currency exchange rate system with both an official and black market rate. The black market rates suggest the official rate is greatly overvalued. The central bank, Bank of Eritrea does have currency controls in place, ultimately the currency should be unified.
CURRENCY HISTORY: the nakfa was introduced in late 1997 at which time it replaced the Ethiopian birr at par, both currencies valued at 7.2 ERN to the USD. The currency itself was named after the town ‘Nacfa’, home of the political movement that spearheaded Eritrea’s independence. Historical exchange quotes include year 2005 at 14.5, 2004 at 13.5, 2001 at 11.31, year 2000 at 9.
CURRENCY FORECAST: devaluation likely with continued economic isolation, high world oil price and declining foreign aid. Currency risk also includes regional instability, erratic rainfall - potential for food production shortfalls. New emerging growth industries such as gold mining are taking place which is positive.
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