Foreign Investment: Eritrea, Mining, Development, and the Resource Curse

‘Eritrea is free from corruption and has a clearly set-out legal framework which is followed to the letter.’ – The Fraser Institute

SEVERAL days ago, the Fraser Institute released its annual Survey of Mining and Exploration Companies. Since 1997, the Institute, headquartered in Vancouver and ranked by a University of Pennsylvania study as “the top think tank in Canada,” has conducted an annual survey of mining and exploration companies to assess how mineral endowments and public policy factors such as taxation and regulation affect exploration investment.

Survey results represent the opinions of executives and exploration managers in mining and mining consulting companies operating around the world. Notably, the survey has expanded to include data on 122 jurisdictions worldwide, on every continent except Antarctica, and including sub-national jurisdictions in Canada, Australia, the United States, and Argentina.

It is noteworthy that Eritrea, often simplistically labeled as the “North Korea of Africa” or regarded as lacking the “characteristics” and “environment” to make it a sound investment destination, has tended to score within the middle of the pack.

For example, on the Investment Attractiveness Index, the country scored 46.7 for 2014 and 57.5 for 2013, ranking it 77 (out of 122) and 48 (out of 112) respectively. For comparison, this places it ahead of Angola, Egypt, Ethiopia, Nigeria, Sudan and South Sudan, Malaysia, the Philippines, Bolivia, Venezuela, China, Bulgaria, and Turkey, to name a few.

Yet again, Botswana, which has experienced decades of sound economic growth, ranked as the top African country. The survey’s Investment Attractiveness Index is an especially useful measure since it combines several indicators and thus provides a thorough, holistic, multidimensional gauge of mining and exploration within a country or jurisdiction.

Another interesting area within the 2014 report is the Comments section. Here, global executives and managers are able to comment freely (since they retain confidentiality) on the mining and exploration environments of various countries and jurisdictions. In addition to other points, Eritrea was described as being “free from corruption” and possessing a “clearly set-out legal framework which is followed to the letter.”

Ultimately, the survey’s comments and indicators offer some cautious encouragement for Eritrea’s ongoing mining and development initiatives. Dating back to its initial days of independence, Eritrea has been aware of the need for a holistic, multi-level approach towards development, while being alert to the pitfalls of the resource curse.

The stagnation – if not outright regression in development – of many countries with great natural resource endowments serve as clear, sobering lessons of the possible consequences of mismanagement. For Eritrea, this has meant that its own approach to development and resources has been cautious, pragmatic, and one where the nation’s resources represent only one variable within the larger equation towards holistic development, rather than a simple panacea. This is most clearly spelled out in a statement to the UN Security Council’s Thematic Open Debate on Conflict Prevention and Natural Resources (June 19, 2013), where Ambassador Araya Desta notes that “[t]he cardinal principle of Eritrea’s mining policy [is that]…all mineral resources are a public property, and that the conservation and development of these resources must be ensured for Eritrea’s present and future generations.”[1]

Amongst the most tangible outcomes of Eritrean developmental efforts are its successes within health and education, especially in regards to the United Nations Millennium Development Goals.[2] It is within this broader developmental context that Eritrea’s natural resources and mining activities may prove useful; not only to accrue foreign capital and strengthen the economy, but also to promote continued national development.

Overall, Eritrea has witnessed several tangible developmental outcomes, especially within the socio-economic, health, and educational sectors, and the country’s natural resources hold the potential to augment these outcomes. At the same time, Eritrea is unquestionably faced with tremendous developmental concerns within a broad range of sectors. Challenges such as poverty are immediate areas the country continues to focus on, while the prolonged illegal military occupation of Eritrean land by Ethiopia represents an unnecessary, harmful distraction from broader development goals.[3]

Moving forward, Eritrea should continue to promote investment and sound management of resources, while the international community should remain constructively involved in and supportive of Eritrea’s developmental efforts and promote the respect of the country’s sovereignty and territorial integrity.