<
http://www.afribiz.info/content/2014/industrialization-and-global-value-cha
ins-in-eritrea> Industrialization and Global Value Chains in Eritrea
Written by: <
http://www.afribiz.info/content/author/hbmungle> Editorial
Team on July 21, 2014.
The Government of Eritrea considers global value chains as one of the main
engines for reducing economic volatility and improving growth. Major
activities within the value chain are currently performed in the provision
of ancillary services, production of agricultural goods, processing,
natural-resource extraction, and sales and marketing. The mining sector has
been the biggest area of attraction with more than 14 mining and exploration
firms from Australia, Bermuda, Canada, China, Libya, the United Arab
Emirates and the UK involved.
In the agricultural sector, China-based firms are increasingly investing in
the construction of cold food-storage facilities, an aluminium-tin
manufacturing plant and a high-quality PVC agriculture drip-irrigation
pipe-production line. The government is strongly encouraging companies and
individuals to invest in building residential housing, roads, airports,
ports and hospitals. In the housing sector, Gruppo Italiano Costruzioni, an
Italian firm, is constructing 1 680 housing units in the capital city,
Asmara, as well as several housing projects and a resort in Massawa. The
main drivers of the development initiatives are embedded in the country’s
commitment to development through a self-reliance policy.
The Eritrean Investment Centre has been reaching out to potential investors
and has provided assurances of protection to investors in the country. The
government also introduced a crash program for export take-off designed to
penetrate the European and US markets (through the US Africa Growth and
Opportunities Act, 2000). Eritrea was thus able to export textiles/garments
to the United States free of duty and free of quota restrictions up to 2008.
Overall, the impact of the country’s participation in the value chain is
noticeable, particularly in job creation, infrastructure and capacity
development and in increased revenue inflows. Direct and indirect employment
associated with the Bisha mine only is expected to amount to as many as 700
jobs when in full operation.
The growth potential of agriculture has not been fully exploited mainly due
to low connectivity of the production locations, low levels of value
addition and low productivity. The fishing value chains are relatively
well-developed, but there is considerable room for improvement. Key
investment opportunities in the fisheries subsector provide a potential of
90 000 kmē of fishing grounds, with an estimated annual production potential
of between 65 000 t and 70 000 t of fish and other marine produce. Demand
for fish exceeds supply in urban areas and there is latitude for increased
domestic consumption. In addition, the Eritrea fisheries sector has the
potential to contribute significantly to Eritrean food security,
foreign-exchange earnings and job creation.
The tourism sector has huge potential based on the scenic and topographic
diversity of the country as well as on its history, in addition to a long
coastal line of pristine sandy beaches, many islands and clear water with
abundant marine life. There are also good investment opportunities in
developing the historical and cultural heritage of the country.
Investment in exploration activities for reserves of oil, natural gas and
other minerals provide a potential source for the expansion of export
receipts. Offshore-oil and natural-gas exploration are specific areas of
potential investment.
In spite of these investment opportunities, the country faces many
challenges, amongst which low productivity in agriculture attributed to
archaic farming practices and a land-tenure system that vests ownership of
land to the government.
Exploitation of the existing economic opportunities in Eritrea will require
not only the commitment of the Government of Eritrea and its people, but
also regional integration and international trade. The country therefore
needs to undertake effective policy reforms, including regional co-operation
and integration policies, and develop a strong infrastructure base in
addition to the provision of sufficient energy, transport, communication and
physical marketing facilities, as well as adequate institutional and
human-resource capacity and incentives. For example, with adequate policy
reforms and investment, there is ample room for accelerated agricultural
development. By using modern cultivation, fertilization, plant-protection
and water conservation techniques, large quantities of food crops, exports
and raw materials for industrial enterprises can be produced. The
development of irrigated agriculture in the lowland river basins is highly
promising.
In the medium-term, Eritrea should consider the following key measures:
* Actions to deepen the value chain must be driven by market
opportunities and demands. Here, the Government of Eritrea must address
barriers such as high infrastructure costs, lack of access to finance
(capital) and the limited availability of skilled workers and appropriate
incentives. In particular, it must address barriers facing small and
medium-sized firms, as these provide greater opportunities to deepen the
value chain within the major economic sectors.
* Policies aimed at supporting private-sector development in
manufacturing and primary input processing are also useful. There is great
potential for Eritrea in processing agro-food products for export.
* The government’s forthcoming development plan emphasizes the move
into higher value added activities. The government needs to consolidate
these plans into one national plan and detail out synergies across sectors.
It should further develop a business environment through the creation of
supply-chain linkages between foreign and local firms in formal
manufacturing in order to foster the emergence of local manufacturing firms
capable of subcontracting tasks and subsequently competing with foreign
firms. This will encourage domestic firms to become more innovative and
raise labor productivity in order to work with multinational enterprises.
* To improve the country’s business climate, the government should
make efforts to develop human skills further and provide appropriate
incentives in order to respond to labor-market demands. The government, with
assistance from the AfDB, is developing the required skills and technical
expertise through a vocational and technical training program. The
government has asked the AfDB to support the program continuously over the
medium term in order to close the skills gap in the country.
Excerpt from
<
http://www.africaneconomicoutlook.org/fileadmin/uploads/aeo/2014/PDF/CN_Lon
g_EN/Erithr%C3%A9e_EN.pdf> Eritrea Country Note, African Economic Outlook
2014
Received on Mon Jul 21 2014 - 18:19:12 EDT