Economy

Since independence from Ethiopia, Eritrea has faced economic problems characteristic of a small, poor country. Like the economies of many other African nations, the economy is largely based on subsistence agriculture, with 80% of the population involved in farming and herding. Natural disasters regularly create hardships for Eritrean agriculture, with the most devastating of these including locust plagues, African armyworm plagues and drought.

The Eritrean-Ethiopian War severely hurt Eritrea's economy. GDP growth in 1999 fell to less than 1%, and GDP decreased by 8.2% in 2000. The May 2000 Ethiopian offensive into southern Eritrea caused some $600 million in property damage and loss, including losses of $225 million in livestock and 55,000 homes. The attack prevented planting of crops in Eritrea's most productive region, causing food production to drop by over 60%.

Despite this, Eritrea has continued to develop its transportation infrastructure, asphalting new roads, improving its ports and repairing war-damaged roads and bridges as a part of the Warsay Yika'alo Program. The most remarkable of these projects has been the building of a coastal highway of more than 500 km connecting Massawa with Asseb, along with the rehabilitation of the Eritrean Railway, which now runs between the Port of Massawa and the capital Asmara.

Eritrea's economic future remains mixed. The cessation of Ethiopian trade, which mainly used Eritrean ports before the war, leaves Eritrea with a large economic hole to fill. Eritrea's economic future depends upon its ability to master fundamental social problems such as illiteracy, unemployment and low skills, as well as the willingness to open its economy further to private enterprise so that this money and expertise can foster economic growth.