Is a Better Relationship with Eritrea Possible?

By Seth Kaplan | TheCipherBrief

The U.S. and Eritrea do not have strong bilateral relations. Ever since UN sanctions were imposed in 2009 and again in 2013, doing business in Eritrea, let alone having strong diplomatic ties, has become more difficult. Yet this country in the heart of the Horn of Africa could be key to fighting extremist terrorism in the region. The Cipher Brief spoke with Seth Kaplan, a lecturer in African Studies at the Johns Hopkins School of Advanced International Studies and author of a recent Atlantic Council report on Eritrea, about the current political leadership and economy in Eritrea – and the potential for U.S.-Eritrea relations under the Trump administration.

The Cipher Brief: In your recent report, Eritrea’s Economy: Ideology and Opportunity, you discuss Eritrea’s socialist nationalist ideology that has caused it to pursue stable, rather than dynamic, economic policies. How is this affecting the country’s development?

Seth Kaplan: It’s really important to understand that ideology affects every country, it affects the United States, it affects every country in terms of how problems are framed, how institutions work, how policy choices are made. This is not unique to Eritrea. What makes Eritrea unique is that the ideology that affects the top leadership puts it in a category of countries like Cuba, even though Eritrea would never think of itself as communist, it certainly fits more with the China or Vietnam model, the more communist or socialist countries.

I would call Eritrea a socialist nationalist regime. That means that it’s very focused on building up the state but in a certain socialist way. This ideology makes it somewhat not interested in private enterprise, at least not on a large scale. There’s more small-scale private enterprise in Eritrea certainly than there is in Cuba or there was in the European Eastern Bloc before 1989, or China before its reform era. But the government is in control of important sectors.

Even the mining sector, where it’s managed very well and has outside partners, the government wants to be a major player in terms of making decisions and investment and ownership and so, therefore, it’s very much a state-centric economy. It reminds me of Hungary in the 1980s, which allowed small-scale retail but the other large-scale industry was controlled by the state. Although the Eritreans may be open to some investment by outsiders, by private companies, and countries such as China, they much prefer domestic to foreign and they much prefer that the state play a dominant role, or at least an important role, in what they consider highly important sectors. This ideology influences policy.

To the extent that they are more anti-outsiders or they feel they have been mistreated by the West or the international community, the difference I would say between Eritrea and countries with a somewhat similar ideology that have taken a different path – like Cuba, which has this ideology but has taken a pretty closed approach, very risk-adverse, very state-centric – is that Eritrea is more open in many ways than Cuba, let’s say. It’s easier to leave, it’s easier to start a small business, in many ways it’s certainly much more open than Cuba, despite the controls on the Internet.

There’s a group of countries that are somewhat similar to Eritrea that are also built on socialist nationalist ideas but that are engaged with the world, in a confident manner, and determined to take the best of globalization and trade and investment to advance what I would say are relatively similar goals. I would say Rwanda and Ethiopia have some similarities with Eritrea. China and Vietnam have some similarities. Eritrea is close to Cuba. The extreme version of a socialist nationalist ideology would be North Korea, which of course is not open to almost anything.

TCB: Two follow up questions: You mentioned the mining sector as being highly valued by the country; what other sectors are very important to the country’s economy and the second question, what’s the flow of foreign direct investment? So who are the biggest external investors in Eritrea?

SK: The second question is easy – there’s very little foreign investment in Eritrea right now. The mining sector is by far the most important sector. Identifying sectors that would be good for Eritrea to open up is probably the easiest thing to do in my whole report: mining, the ports, tourism, manufacturing, and so on. These are things you could know without visiting the country or doing any research. Having said that, the mining sector – simply because the country has got very good natural resources, like copper, gold, etc. – is big investment, hundreds of millions of dollars, that returns big money. If you look at Eritrea’s exports, foreign currency reserves, current account surplus/deficit, everything changed dramatically once the Bisha Mine opened in 2011. Before that, the country was basically broke, and now the country is not doing great, but it has more resources.

Before talk of the sanctions began there were more investments. But when you discuss foreign investment, you have to be careful because foreign investment could be many different things. It could be multinationals or companies that are like big multinationals – I would put all the mining companies in that area. You could also have smaller companies from the region that might be interested in Eritrea. And then you have the diaspora. The three types of investors operate differently. I have a business background, I worked in multinationals, so I understand the differences. Right now, the only sector that is of great interest to outsiders is the mining sector – unless you have a mine, the country is so unattractive to invest in and the risks are so high why would anyone make this effort? The mining sector is an exception, and if you’re a Chinese or Indian or Russian or maybe from those types of countries, you might not care so much about the sanctions, you might not be worried about being sued. But certainly for the Western multinationals, the mining sector is the only thing that would interest them, and even then, the risk-reward is not easy because of all these other factors.

Just to end this, I would say before the talk of sanctions began I don’t know if there was a lot of foreign investment, but there was probably a lot of diaspora investment and regional investment – these are smaller companies. Certainly the investment rate was not bad. But with the sanctions, the numbers plummeted. So I do believe the sanctions have really reduced the attractiveness of any of these other sectors.

I would also add the government has not made a very proactive effort in any of these other areas. Look at the ports. When Italy ran the ports they were incredibly important. Look at Djibouti and how important their ports are. Somaliland’s ports have some potential. Eritrea has done very little to exploit its ports, which would be very important.

Tourism would also be very important to Eritrea, maybe small scale, I don’t think the country would open for large numbers of people, again because of the ideology.

So those are a few attractive sectors where the country could be doing more, but they don’t seem to have the interest. So I would say they’re shooting themselves in the foot. Plus, the sanctions make everything difficult.

With regards to the biggest external investors, you have the Canadian company which operates the Bisha Mine that’s the most prominent, and then you have Chinese companies that are the second most prominent.

TCB: Can you give a very quick overview of the status of U.S.-Eritrea relations right now, and do you think that there’s any potential for that to change over the next four years with the incoming Trump administration?

SK: First of all, it’s very hard to know what the new administration will do on many things. You can probably predict some things. But the Horn of Africa, I don’t think we’ve had any comments on that.

Now the fact that fighting terrorism, fighting Islamic terrorist groups, might turn out to be by far the most important goal for the new administration, you would think that Eritrea would be not a highly prioritized but still important partner, given its geopolitical location and its importance as a stable country in the Horn of Africa. If our primary goal in that part of the world is simply to reduce the threat from terrorism and to defang as much as possible terrorist groups and possibly, to the extent that it’s possible, to end the conflict in Yemen, certainly we would want better relations with Eritrea.

So assuming that those are priorities, you would think that there might be more of an open mind to having a better relationship with Eritrea and if the sanctions were reduced, that would mean that there would be greater chance for outside investors to do something in that country.

We’ve lifted sanctions on Sudan, and if we’ve lifted sanctions on Sudan, I cannot see why we would not want to have a better relationship with Eritrea. Having said that, Eritrea has sort of been made everybody’s worst example of human rights, even though I don’t actually see why it’s so much worse than other countries in its region (e.g., Sudan).

But assuming the Trump administration would have that one goal, and therefore relations with Eritrea were improved and sanctions were reduced, and therefore we had a better relationship and exchange of ambassadors, I would say the opportunity for investment would increase.

Having said that, the next step would be that Eritrea would certainly have to be more open and more eager, and that involves some policy changes on their end. The port would be a very good place to start.

TCB: The last thing I want to touch upon is migration from Eritrea to Europe. What are the underlying reasons for this migration – is it mostly economic?

SK: Well it’s a combination of politics and economics, and what percent is politics and what percent is economics no one can really answer. I think the parallel with Cuba is again a good parallel. Why do people leave Cuba to come to the United States? Well, there are political reasons and there are economic reasons. Politically, you might not like the degree of freedom in Cuba, you may not like the options for jobs, you might have to work in some government agency and have very little freedom to make choices for yourself. But there’s also the economic component, that is Cuba is poor, compared to the United States, where there’s more opportunity, more wealth. So what percent of that is political and what percent of that is economic, I think it’s very hard to figure out.

Eritrea, I think, is a combination as well. The country is poor, the salaries are low, the opportunities are limited, and there’s a lot of diaspora that have done very well. These could be conceived as economic reasons to migrate.

In Eritrea, we know the national service is a big problem – you don’t know how long you’ll be on national service and you know the amount of money you’re getting paid is very little. That’s a very good political reason to leave Eritrea. We also know that there are no elections and the media is controlled. That’s also a very good reason to leave Eritrea.

A big carrot is that like the Cuba policy, where, until recently, if you got to American soil by land you got your U.S. passport eventually, with Eritrea the policy has been in Europe for many years that if you got to Europe, you got immediate refugee status.

So it’s really a combination of political and economic factors, with the added benefit of the free asylum status from Europe.

TCB: Do you know if Europe has reconsidered the automatic refugee status for Eritreans, especially with the influx of refugees over the past couple of years and all of these deals that the European Union has been trying to make with African countries to send migrants back?

SK: Of course the refugee crisis in Europe was not driven by Eritreans, it was driven by Syria. But once that crisis hit, every country began trying to do everything it could to eliminate reasons for people to come to it. So for about two years, there has been an attempt to reconsider migrant rules and processes. I could not tell you how far along they are. But I know a number of countries are involved in the process of rethinking their policies. I would guess eventually most of the Europeans will find a way to change the rules, or you could say limit the scope of the rules. That means, they’ll still provide something but in a much harder or less attractive manner, because if you’ve spent any time in Europe in the last 12 to 18 months, you certainly know the refugee thing is a political bomb that every politician wants to somehow solve.

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