Current Economic Situation in Eritrea
Eritrea is one of the least developed countries in Africa. Its economy has suffered from poor governance and finance mismanagement, poor structural reform policies and commitments, and underdeveloped legal frameworks. The country’s population is 3.6 million, with an 8.1% unemployment rate. Inflation stands at 7.5% while the public debt is 176.3% of the GDP.
Sources: Visiteritrea.net
The economy of this East African nation is considered “repressed”. This is due to its poor rating on the 2024 Index of Economic Freedom. Eritrea's economic freedom score is 39.5, and it ranks 170th out of 184 countries. In the Sub-Saharan Africa region, it ranks 44th out of 47 countries.
In a report titled “IMF Executive Board Concludes 2019 Article IV Consultation with the State of Eritrea”, the Directors at IMF while dissecting the economy of Eritrea have this to say:
...prolonged conflict had exacerbated Eritrea’s economic difficulties and that the macroeconomic situation and near‑term growth prospects are challenging. They underscored the importance of securing macro‑financial stability, addressing the unsustainable debt burden, and removing impediments to private sector‑led growth.
Eritrea's economy still suffers from the chronic deficits caused by the regional insecurity in 1998. In a bid to improve the economy, the government is tightening fiscal policies to reverse the effects. These policies have been hard on businesses, as just a few sizable private businesses exist. However, the statistics are improving.
In 2023, agriculture accounted for 17.6% of Eritrea's GDP, which was 10.6% in 2004. The industry’s share grew from 19.6% in 2004 to 32% in 2023. The African Economic Outlook (AEO) projects that the GDP will stabilize at 2.9% in 2024 (as it was in 2023) and with an increase to 3.1% in 2025.
Source: Afdb.org
The mining sector will lead this growth on the supply side, while private consumption and investment will lead on the demand side.
Crypto Law in Eritrea
There is no regulation of cryptocurrencies in Eritrea. However, they are legal. The government’s stance on crypto has been cautious but not restrictive like other African nations.
Source: Arksigner.com
The absence of regulation has created a gray area leaving businesses and individuals who utilize and patronize these digital assets at their peril.
Current State of Crypto Adoption in Eritrea
There is currently no publicly available data on the adoption rate of cryptocurrencies in Eritrea, likewise, there is no past data. This makes it difficult to analyze the current state of crypto in Eritrea or even draw future projections.
However, crypto exchanges such as UEEx, Binance, Bybit, SpectroCoin and others are virtually catering to the small portion of the population that is adopting this technology, especially tech-savvy young Eritreans.
Factors Driving Adoption
The fiscal policies in Eritrea are quite strict and not flexible like in neighboring countries. To evade them, some citizens are embracing alternative decentralized payment solutions.
Source: AfricanNews.com
The Directors of the IMF complained about these policies in its report:
…restrictions impeding the private sector should be eliminated and recommended that the authorities reduce state monopolies, impose hard budget constraints on public enterprises and banks, ease foreign exchange restrictions, improve access to financial services, and strengthen property rights. They underscored that actions to improve governance and reduce vulnerabilities to corruption would also be important.
The tech-savvy youth population of Eritrea are adopting virtual currencies for wealth creation and investment purposes. They also explore this option to escape the hassle of the traditional banking system, whose policies are not very accommodating.
Challenges Facing Crypto Adoption in Eritrea
Source: Forbes.com
No Legal Framework
The unregulated nature of cryptocurrencies in Eritrea poses doubts and uncertainty in the minds of crypto users and potential consumers, thus limiting the adoption rate of this emerging technology.
Poor Internet Infrastructure
Another pending challenge is the limited internet infrastructure in Eritrea. The internet is not readily available everywhere like in other countries. Even in major cities like Asmara, the nation’s capital, there are few internet cafes.
Source: Poweronpro.com
You can only get connected to the internet in places like hotels, government organizations, and educational and research institutions. The connection is still limited and heavily regulated by the government who keeps a close eye on activities that happen in such places.
The need for a stable and readily available internet for crypto mining, minting, and even for day-to-day transactional uses cannot be overemphasized. A limited and regulated internet will continue to limit the adoption of crypto in Eritrea.
Electricity Crisis
The International Energy Agency (IEA) has disclosed that less than half of the population in Eritrea has access to electricity. This is also another serious setback. Activities like crypto mining require a lot of energy which without, will drastically limit the adoption rate.
Source: IEA.org
Education and Digital Literacy
In the words of Albert Einstein:
Education is what remains after one has forgotten what one had learnt in school.
More education and digital literacy on emerging technologies such as cryptocurrencies are needed in Eritrea to fully harness the benefits of these technologies. UNESCO's Institute for Statistics in 2018 said that adult literacy in Eritrea stood at 76.6%, with youth (15 - 24 years) literacy at about 93.3%.
Although this displays progress from the 52% literacy rate of adults and 77.9% of youth in 2002, more work still needs to be done. The more education and digital literacy spread across Eritrea, the more open-minded and receptive they would become towards virtual currencies.
Source: X.com
The Potential for Cryptocurrency in Eritrea
Remittances
Globally, Eritrea is one of the most diasporic nations with over one-third of its population living abroad.
Source: Nationaleconomy.com
This creates a big market for international transfers as most Diasporans are sending money over to loved ones and vice versa. As such, they would require faster transaction rates with cheaper fees, and this is where cryptocurrencies would come in as they do offer that.
Financial Inclusion
Although a good number of Eritreans have bank accounts due to the restriction on hoarding and use of cash by the government, there are excessive regulations on these bank accounts. These regulations range from low monthly limits on withdrawals to restrictions on sending foreign currency abroad.
Aside from these, the obsolete technologies used at these traditional banks are frequently subjected to extended power cuts, forcing them to cease or limit services.
Virtual currencies could solve all these problems as they have higher limits, lesser restrictions, lesser transfer charges and offer better technology.
Cross-border trade
International trades could be facilitated with cryptocurrencies as they also help to bypass some of the traditional banking restrictions. The lower transaction costs and speed it offers give it a competitive advantage.
Conclusion
An increasing interest in the adoption of cryptocurrencies has the potential to improve the Eritrean economy. Higher remittances, trade and improvements in the financial sector will lead to more money in circulation, which has been one of the goals of the government with its restriction on cash hoarding.
However, the unregulated status of crypto, coupled with the tightfisted policies, and internet and electricity limitations in Eritrea are limiting the patronage of this technology.
