Why Invest in Eritrea?
What makes Eritrea the
ideal choice forinvestments?
By Berhane
Woldu,
Eritrea’s Strategic Location along the Red Sea provides ideal exposure to one of the world’s
busiest shipping lines and established linkages to other areas of the region
and beyond. The port of Massawa is a transit point for goods to the Middle
East, European and Asian Markets. The development of the port is poised to
bring about potential gains to trade.
The establishment of a Free Port Zone at Massawa is further expected to boost trade prospects
within the already established Middle Eastern and AfricanMarkets. The Massawa Airport is equally capable of facilitating traded
goods in transit to regional and global destinations.
Investment in
exploration activities for reserves of oil, natural gas, and
otherminerals provide a potential
source for the expansion of export receipts. Eritrea’s natural mineral
resources include gold, copper, potash, zinc, oil, natural gas, cement,
gypsum, granite, marble, ceramics, limestone and iron ore.
The Bisha Mining
Company, which is a mining conglomerate between the government and a Canadian
company (NEVESUN), has started production in early 2010. The company
produced more than 390,000 oz of
gold during the first year of operation and
expected to produce more than 450,000 oz in the second year. Copper production will
begin in the second year and peak at 184-million pounds of copper in the fifth
year of operation. The mine will begin producing zinc in its sixth year. There
are many more mining contracts on the making. The potash mine in Danakil
Depression with a planed output of up to 10,000 ton a day life span of over 150 years, the Zara and Dubrba gold mining Eritrea
stands to share in hundreds of billions of dollars in mining profits.
PRIVATE SECTORE DEVELOPMENT
The private sector is
seen as the major development partner, an engine of growth that will help jump
start the economy and eventually lead to long-term growth in the Governments
development agenda- as explicitly indicated in the Macro Policy document (1994). The Government has achieved so much at
adopting favorable monetary and fiscal policy, reduced regulatory framework and
bottlenecks by offering incentives and avoiding trade and other related
barriers to attract private sector investment and to expand exports.
In line with the
macro-policy objectives, a revised investment code was issued in 1994. The main objective of the
investment code is to promote investment in Eritrea as well as develop and use
the country’s natural resources. Within this broader objective, the investment
code intends to achieve objectives including, the promotion of exports,
encouragement of competitive import substitution industries, enhancing transfer
of new technology, securing equitable regional growth, development of small-and
medium-scale enterprises, and expansion of employment opportunities (GOE, 1994: 5).
The Eritrean
investment code also provides various incentives for domestic and foreign
investment. The investment code further outlines that there will be no taxes on declared dividends; any corporate profit that is set aside for
reinvestment will be taxed at the rate of 20%. Furthermore, there shall be no exchange controls for remitting dividends
and capital gains, and foreign investors are free to repatriate their profits.
The investment code
provides various benefits to investors. For instance, profit and dividends of
investors, payments for a foreign loan, fees, royalties, or proceeds received
from liquidation of investment and/or expansion, and payment received from the
sale of transfer of shares will be remitted in accordance with the rate of
exchange prevailing at that time. There is no minimum threshold value of
investment. Moreover, with the exception of domestic retail and whole sale
trade, import, and commission agency that requires bilateral agreements of
reciprocity with the country of investor, all areas of investment are open to
all investors both foreign and domestic (GOE, 1994:6). Foreign capital may
establish any enterprise on its own or in partnership with local capital.
Moreover, the
investment code guarantee, that capital and other
associated foreign-owned assets will not be nationalized without due laws. To
this effect, Eritrea has also signed the convention establishing Multilateral
Investment Guarantee Agency (MIGA) and the convention on the Settlement of
Investment Disputes between States and Nationals of other States(GOE, 1998: 20). It established, The
Investment Center, which is the legal body responsible for the promotion of
investment. Issuance of certification to investors with a maximum delay of 10
days (GOE, 1994:15), Land Proclamation that provides usufruct rights for the
long-term up to 99 years has been issued since 1994 and is expected to
facilitate the allocation of land for investors (GOE, 1994; IMF, 1996:9).
Significant progress
has been made since independence regarding the liberalization of trade policy. The 1994 Legal Notice 18/1994 reduced the number of import tariffs to twelve. Capital goods, raw
materials, and semi-processed goods have only a2 % tariff. Basic goods duties range from 3 to 20%. In
addition, customs procedures were simplified. In the mid-1990s, the government
began major investments in infrastructure, roads, electricity, dams, and port
operations to support the further development of exports. To expand the market
for import and export potentials the country entered into active membership in
regional organizations such as IGAD and COMESA.
INVESTMENT ENVIRONMENT
Peace and security are
the main pillars of a true and conducive investment environment in Eritrea. The
economic policy underlines the necessity to have a market lead economic system.
The private sector should have the upper hand in all economic sectors with the
government to intervene in major public shares. The following are some of the
steps taken for a better investment environment:
The Eritrean Investment Center was created in 1998 to promote the country as an
attractive investment destination. The investment center approves
investment projects, and aims to promote and facilitate investment
activities in Eritrea.
The Business Licensing Office (BLO) was established to create a centralized, “One-Stop”, licensing center to facilitate the speedy formation of
business ventures as well as the issuance and renewal of licenses.
Key investment opportunities in the fisheries
sub-sector provide a potential of 90,000 sq.km of
fishing ground, with an estimated annual
production potential of 65,000-70,000 tons of fish and other marine produces.
The manufacturing sector produces a variety of products
with particular emphasis on processed food and dairy products, alcoholic
beverages, glass, leather goods, marble, textiles and salt.
Recent developments in the mining and quarrying
sectors.
Investment opportunities in the service sector include
tourism, transport, energy and water resources, communication and
financial services.
Offshore oil and natural gas exploration are specific
areas of potential investment in the energy sub-sector.
INVESTMENT INCENTIVES IN ERITREA
The investment policy of Eritrea
provides the following incentives to foreign and domestic companies.
·
Both local and foreign private sector investors are allowed to
participate in all sectors of the economy with no restriction
and discrimination
·
Priority foreign exchange allocation given to exporters
·
Up to 100% retention of foreign currency earning
·
No taxes on dividends declared
·
Capital goods, intermediates, industrial spare parts and raw
materials are subject to nominal customs duty of 2%
·
Raw materials and intermediate inputs are subject to 3% sales tax; however, all sales taxwill be
rebated on all materials and inputs that have been used for export production
·
Exports are exempted from export duties and sales taxes
·
Any loss incurred during the first two years of operation by an
investor may be carried forward for three consecutive years
·
Marginal tax rate on personal income from 2%-38%: on non-corporate
profit from 2%-38%; on corporate profit from 25%-35%; on commercial agriculture
from 2%-320%; and on rent income from 1%-48%
·
Profit derived from mining activities will be taxed as per the
mining legislation; and
·
Corporate profit that is set aside from reinvestment taxed at
the rate of 20%.
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Received on Sun Jan 22 2012 - 09:50:32 EST
