Housing Finance in Eritrea
Overview
This profile is also available in French here.
To download a pdf version of the full 2021 Eritrea country profile, click here.
Eritrea is a Horn of Africa country with its largestcityAsmara, known for its famous Italian colonial architecture. The country borders Djibouti, Ethiopia, Sudan, and the Red Sea, thus strategically located along major world shipping lanes. Eritrea has a population of 3.6million, a growth rate of 2.35%, and a very high fertility rate of 4.13 births per woman as of 2019. The high fertility rate is accounted for by improved life expectancy of 39 to 60 and a significant drop in child mortality rates due to improved health care. However, for the last 30 years, Eritrea has borne the brunt of the border conflict with Ethiopia and the authoritarian rule of its founding President Mr.Afwerki, which has led to considerable migration and displacement. Eritrea has been referred to as a “diaspora nation” since close to half of the population lives in the diaspora.
The country has one of the lowest urbanisation rates in Africa (35.8%compared to its neighbor Djibouti at 78.0%). There are minimal job or business opportunities in the urban areas, which is a disincentive for rural-urban migration. With a low urbanisation rate and high emigration, Eritrea does not suffer the severe shortage of housing in urban areas that most African countries do. Nonetheless, the country faces major challenges in housing and urban development including poverty, a shortage of skilled labor, lack of building materials, and inadequate institutional capacity to provide inputs critical for housing development.
The country’s 2020 real gross domestic product (GDP)was expected to drop by 0.6%relative to the growth of 3.8% in 2019 due to locust invasion coupled with effects of COVID–19 pandemic which curtailed economic output during the year. While COVID–19 aggravated Eritrea’s economic decline, the decline in economic performance has largely been blamed on the country’s overdependence on mostly rain-fed agriculture, which accounts for one-third of its GDP. The African Development Bank (AfDB)observes that private consumption, investment as well as net exports were depressed in 2020, which further explains the decline in economic growth. Inflation in 2020 stood at 4.7%compared to deflation of 16.4% in 2019 partly due to disruption of regional and global supply chains induced by COVID–19. Broadly, while Eritrea has not suffered severely from COVID-19infections,disruption from containment measures and the impact on the global and local economy will likely hit the country in the short term.
Find out more information on the housing finance sector of Eritrea, including key stakeholders, important policies and housing affordability:
- Introduction
- Access to finance
- Affordability
- Housing supply
- Property markets
- Policy and regulation
- Opportunities
- Availability of data on housing finance
- Urban Informality
- Additional sources
- Websites
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2021 edition, which has up-to-date profiles for 55 African countries.
Download yearbookEritrea
Introduction
Eritrea is an East African country bordering Ethiopia, South Sudan, Djibouti and the Red Sea[1] and is considered one of the world’s least developed countries, with 65 percent of the population living in rural areas.[2] According to UN Habitat, all the urban centres in Eritrea were badly affected by the 30-year war that created an extreme need for housing and shelter.[3] UN Habitat observes that the problem of housing in Eritrea is exacerbated by the influx of Eritrean refugees returning to the country after the peace agreement with Ethiopia. The United Nations Development Programme (UNDP) in partnership with UN-Habitat have funded a programme aimed at improving the government’s institutional capacity for managing urban service delivery, to spur economic development and enable housing development.[4]
Although the country endured over a decade of a “no peace, no war” standoff with Ethiopia, the two countries signed a declaration of peace and friendship in 2018.[5] According to the Heritage Foundation, 80 percent of the rural population rely on subsistence farming for their livelihood, largely dependent on favourable weather conditions. Within the Horn of Africa, Eritrea was one of the countries ravaged by a locust invasion earlier this year.[6]
All Eritrean land is considered state-owned and citizens have no property rights. As such, even in rare cases where private property exists, property can be expropriated by the state without recourse to legal process or compensation. The Judiciary is considered largely understaffed, militarised, underfunded, politicised and unprofessional. Accordingly, the 2020 Index of Economic Freedom ranks Eritrea at last position out of 47 Sub-Saharan African (SSA) countries, the lowest global overall ranking.[7] The African Development Bank (AfDB) observed a decline in the country’s (real) gross domestic product (GDP) to 3.1 percent in 2019 due to suppressed final demand for investments and exports.[8] The real GDP rate in Eritrea can be accounted for by the activities of agriculture and mining, while the most visible economy is dominated by investments in energy, roads and irrigation infrastructure.
On the positive side, consumer prices in goods have persistently declined for three consecutive years since 2017 due to low priced imports and illicit trade: by 13.3 percent in 2017, 14.4 percent in 2018 and 27.6 percent in 2019.2 Moreover, the country benefited from a US$ 1.5 million grant by the AfDB as part of a special relief fund to Eastern and Horn of Africa countries, particularly aimed at fighting desert locust infestation.[9] Financially, Eritrea has a small financial system characterised by small loans and a notable lack of asset-based securities, as well as an absence of formal capital markets.[10] The nonconvertible nature of the country’s currency (nakfa), however, and a prohibition of foreign ownership and investment in the country, is a major roadblock to potential foreign investment.
[1] Wikipedia (2020). Eritrea. https://en.wikipedia.org/wiki/Eritrea (Accessed 18 September 2020).
[2] Heritage Foundation (2020). 2020 Index of Economic Freedom. https://www.heritage.org/index/country/eritrea (Accessed 30 August 2020).
[3] UN Habitat (2020). Capacity Building for Sustainable Human Settlements Development – Eritrea. https://mirror.unhabitat.org/categories.asp?catid=194 (Accessed 18 September 2020).
[4] UNDP (2020). Support to the National Response to Contain the Impact of COVID-19. https://www.undp.org/content/dam/rba/docs/COVID-19-CO-Response/undp-rba-covid-eritrea-apr2020.pdf (Accessed 4 September 2020).
[5] CIA (2020). The World Factbook. https://www.cia.gov/library/publications/the-world-factbook/geos/er.html (Accessed 9 September 2020).
[6] International Rescue Committee (2020). The other plague: Locusts are devastating East Africa. https://www.rescue.org/article/other-plague-locusts-are-devastating-east-africa (Accessed 5 September 2020).
[7] Heritage Foundation (2020). 2020 Index of Economic Freedom. https://www.heritage.org/index/country/eritrea (Accessed 30 August 2020).
[8] AfDB (2019). Eritrea Economic Outlook. https://www.AFDB.org/en/countries/east-africa/eritrea/eritrea-economic-outlook (Accessed 6 September 2020).
[9] AfDB (2020). Special relief fund – East and Horn of Africa desert locust crisis proposal for a grant of US$1.5 million for emergency assistance to fight the desert locust invasion in 9 regional member countries. https://www.AFDB.org/en/documents/special-relief-fund-east-and-horn-africa-desert-locust-crisisproposal-grant-usd-15-million-emergency-assistance-fight-desert-locust-invasion-9-regional-member-countries (Accessed 5 September 2020).
[10] MFW4A (2019). Horn of Africa Banking Forum (22-26 July 2019). Making Finance Work for Africa. https://www.mfw4a.org/sites/default/files/resources/web_country_financial_sector_profiles_corne_de_lafrique.pdf (Accessed 6 September 2020).
Access to finance
While the private sector in the countries bordering Eritrea is quite vibrant, the country’s financial markets are largely state-controlled. Thus, direct negotiations with the state account for most profitable investments are recommended, as opposed to arm’s-length private investments. According to the United States State Department, government patronage of the economy and the absence of a clearly defined business environment and legal code increases private business risk exposure. Consequently, Eritrea has a significantly high (160/179 countries) Corruption Perception Index (CPI).
Eritrea does not have a well-developed financial system, especially compared to its neighbors Ethiopia, Djibouti, and Sudan. The banking sector is regulated by the Bank of Eritrea and has three commercial banks which are all state-owned. The three banks are Commercial Bank of Eritrea with 80% market share; Housing and Commercial Bank of Eritrea, the 2nd largest bank, established to provide housing finance; and Eritrean Investment and Development Bank, the 3rd largest bank, established to provide financing in the agricultural sector.
The financial system largely comprises the banking sector, the dominant sector, and the insurance sector, but they are mostly underdeveloped. Access to financial information is severely impaired by the fact that the banking sector is government-controlled. Not even the Bank of Eritrea, the regulator, has a website. The online presence of the commercial banks as well is mostly on account of third parties. The country’s microfinance is also undeveloped and mostly takes the form of rotating credit groups and loan sharks or money lenders, known for charging exorbitant interest rates. The two main microfinance organisations are the Southern Zone Saving and Credit Scheme and the Saving and Micro Credit Programme.
The government’s footprints are not only found in the financial services sector. The government (or the ruling party) controls most of the medium and large businesses in the country. The absence of private land ownership hampers the development of mortgages. All land is state-owned, and any home development is closely controlled and monitored by the state. Loyalty to the ruling party and the government is in most cases a prerequisite for getting permission to build homes in the country.
Studies on Eritrea document several barriers to credit access in the country. There is evidence to suggest that among others, stringent credit policies by the leading commercial bank (CBE), conservatism, mutual mistrust, and lack of accounting knowledge among small firms are major hindrances to credit access. The government-owned Eritrea Investment and Development Bank has limited capacity to offer term loans to both private and public sectors. According to the United Nations Development Programme (UNDP), Eritrea’s banking sector is weak in terms of the requirements of the Basel III International Regulatory Framework, and this exposes it to global COVID-19 crisis-related shocks. However, the country’s limited connection with the global financial system renders the extent of exposure to global COVID-19 shocks minimal.
[1] MFW4A (2019). Horn of Africa Banking Forum (22-26 July 2019). Making Finance Work for Africa. https://www.mfw4a.org/sites/default/files/resources/web_country_financial_sector_profiles_corne_de_lafrique.pdf (Accessed 6 September 2020).
[2] CIA (2020). The World Fact Book. https://www.cia.gov/library/publications/the-world-factbook/geos/er.html (Accessed 6 September 2020).
[3] Heritage Foundation (2020). 2020 Index of Economic Freedom. https://www.heritage.org/index/country/eritrea (Accessed 30 August 2020).
[4] World Bank (2020). Doing Business 2020. https://www.doingbusiness.org/content/dam/doingBusiness/country/e/eritrea/ERI.pdf (Accessed 4 September 2020).
[5] Habte, R. (2016). The Impact of Microfinance on Household Livelihoods: Evidence from Rural Eritrea. PhD Thesis, University of Western Cape. http://etd.uwc.ac.za/xmlui/bitstream/11394/4885/1/Habte_at_phd_ems_2016.pdf (Accessed 6 September 2020). Pgs. 30-36.
[6] Wikipedia (2020). Commercial Bank of Eritrea. https://en.wikipedia.org/wiki/Commercial_Bank_of_Eritrea (Accessed 18 September 2020).
[7] Von Eije, H., Fishazion, M. and Lutz, C.H.M. (2002). Accessing bank credit in Eritrea: Bottlenecks for small firms and the commercial bank of Eritrea. University of Groningen.
Affordability
Eritrea has a huge population of rural poor, mostly subsistence farmers, with no access to formal employment. The unemployment rate in 2020 rose to 7.44% from 6.34% in 2019. Although the World Bank estimates that the country has a poverty rate of 70%, the bank concedes that the dearth of data greatly impedes quantitative analysis.
Renting or owning a house in Asmara is expensive and the rates are high in view of the country’s poverty and unemployment rates. Homeownership and formal rental remain mostly within the reach of only the diaspora population rather than those living in Eritrea.
[1] Numbeo (2020). Cost of Living in Eritrea. https://www.numbeo.com/cost-of-living/country_result.jsp?country=Eritrea (Accessed 30 August 2020).
Housing supply
Eritrea is considered a diaspora nation since close to half of its population lives in the diaspora due to hardship and war in the country. Thus, unlike the neighboring country Djibouti, which suffers from a large influx of migrants, Eritrea experiences a large outflow of migrants. The limited opportunities in the country have forced Eritreans to take a risky journey to Europe, exposing themselves to human traffickers, detention, abuse, and death.
According to UN-Habitat, the many years of regional conflicts and war have created an urgent need to resettle displaced households while also accommodating expellees and those returning from the diaspora. In an interview in February 2020, the Eritrean President acknowledged that the government had set lofty goals for housing developments for the citizens which had not been achieved, and that the 2020 focus would be on completing existing projects first. As at the time of writing, no evidence was found of the completion of houses mentioned by the Head of State. While the government has had ambitious plans to develop homes especially in rural areas, the target beneficiaries have mainly been diaspora citizens who are keen on home identity.
[1] UN Habitat (2005). Eritrea: Housing/Urban Development Policy Report. https://mirror.unhabitat.org/files/6670_FINAL_Consolidated_Policy_Report_Eritrea_July20.pdf (Accessed 20 September 2020). Pg. 9.
[2] Keetharuth, S.B. (2015). Report of the Special Rapporteur on the situation of human rights in Eritrea. https://www.ohchr.org/EN/HRBodies/HRC/RegularSessions/Session29/Documents/A_HRC_29_41_AUV.doc (Accessed 20 September 2020).
[3] FAO (2020). Changes and drivers. http://www.fao.org/3/x6782e/X6782E03.htm (Accessed 6 September 2020).
[4] BBC (2019). Eritrea – where ATMs are unknown and Sim cards are like gold dust.
https://www.bbc.com/news/world-africa-49727573 (Accessed 6 September 2020).
[5] Awate (2017). Eritrean economy increased control of real estate. http://awate.com/eritrean-economy-increased-control-of-real-estate/ (Accessed 6 September 2020).
[6] Awate (2017). Eritrean economy increased control of real estate. http://awate.com/eritrean-economy-increased-control-of-real-estate/ (Accessed 6 September 2020).
[7] Raimoq, R. (2019). Master plan for new Asmara Housing Project. http://raimoq.com/master-plan-for-new-asmara-housing-project-eritrea2020/ (Accessed 18 September 2020).
Property markets
The World Bank Doing Business Report 2020 ranks Eritrea at position 178 out of 190 with a score of 35, evidence of dismal performance. Registering property in the country involves 11 procedures over 78 days and the registration costs 9%of the property value. Eritrea practices a cadastral system of land registration whereby the registration of the immovable property is recorded. The country’s office for the registration of land and other immovable property dates to the Italian colonial era and was aimed at guaranteeing the security of property ownership. The Eritrean Cadastre system seeks to register the individual’s rights over parcels of land and ownership of buildings. Due to high poverty levels in the country, property markets are largely dominated by the Eritrean diaspora who have higher disposable incomes than the rest of the population. Property markets were affected by Covid-19 through disruption of supply chains of raw construction materials which are mostly imported.
In addition, containment measures adopted by Ethiopia, such as the declaration of the state of emergency, made it harder for Eritrean traders to import raw materials from their neighbor and traditional source.
The residential resale market in Eritrea is limited by the fact that most of the housing in the country is in the rural areas and is largely intended for among other reasons, family identity. As indicated earlier, land in Eritrea is state-owned, further discouraging homeownership, especially by foreigners. Moreover, the inherent risk of property/land expropriation by the state considerably curtails investments in housing. However, Eritrea has several formal and informal real estate agents who have listed a number of properties across the country.
[1] World Bank (2020). Doing Business 2020. https://www.doingbusiness.org/content/dam/doingBusiness/country/e/eritrea/ERI.pdf (Accessed 4 September 2020). Pg. 4.
[2] World Bank (2015). Stocktaking of the Housing Sector in Sub-Saharan Africa – Challenges and Opportunities. https://openknowledge.worldbank.org/bitstream/handle/10986/23358/main0report.pdf?%20sequence=1 (Accessed 4 September 2020).
Policy and regulation
Authoritarian rule has condemned many Eritreans to years of mandatory military conscription/service without pay, forcing thousands to flee the country in search of asylum. After decades of a“no war, no peace” standoff with Ethiopia, the newly elected Prime Minister of Ethiopia facilitated the signing of a declaration of peace and friendship between the two countries, effectively ending the conflict.33Nevertheless, the recent conflict between Ethiopian government forces and Tigray rebels has led to Eritrean forces being engaged by the Ethiopian government in the fight against the rebels. This is likely to plunge the country into a new conflict with the Tigray rebels even if the Ethiopian conflict finally comes to an end. Because of the years of conflict, Eritrea has not recently formulated new policies or passed new legislation that has implications for housing and infrastructure. The country lives in a constitutional void, considering the constitution passed in 1997 has never been implemented and is still earmarked for review under unclear modalities. Nonetheless, the Land Proclamation No. 58/1994 introduced Eritrea’s general land reform and formulated new rules recognising land tenure, inheritance, as well as land use. Since all the land belongs to the state, property rights barely exist and land can be expropriated by the state operatives.
Several legal developments have affected the administration of the real estate as well as property rights since independence. For instance, a major disincentive to the developers of rental houses is that property owners must sign rental agreements at the nearest government office and rent must be collected by government officials from tenants and later delivered to landlords, not of tax.
[1] Awate (2017). Eritrean Economy: Increased Control of Real Estate. http://awate.com/eritrean-economy-increased-control-of-real-estate/ (Accessed 18 September 2020).
[2] UNGA (2020). Human rights situation in Eritrea. United Nations General Assembly. https://reliefweb.int/sites/reliefweb.int/files/resources/A_HRC_44_23_E.pdf (Accessed 4 September 2020).
Opportunities
This diaspora population presents numerous opportunities for home developers since they have much higher disposable incomes than the rest of the population. The country does not have private commercial banks, especially those that would provide home loans. Investors may consider Public-Private Partnerships(PPPs) with the government to provide housing infrastructure.
Most of the construction materials are sourced from Ethiopia butare subject to significant government control. Investors may consider investment in raw material production plants but need to be cautious because of the risk of expropriation of their investment by state actors.
The conflicts in the region have led to the displacement of thousands of people in need of basic housing infrastructure. Investors may consider partnering with the country’s development partners to develop such infrastructure.
Lastly, the signing of the peace agreement between Ethiopia and Eritrea has made the landlocked Ethiopia re-access the Eritrean ports of Massawa and Assab, which are closer to Ethiopia than Djibouti ports. Since Eritrea has a long coastline, this presents a great opportunity for developing infrastructure to support an expected surge in ports’ activities.
In 2017, Asmara was added to United Nations Educational, Scientific and Cultural Organization’s (UNESCO’s)World Heritage List, and with its colonial Italian architecture, Eritrea could once again be a popular tourist destination, once peace is restored.
[1] BBC (2018). Eritrea breakthrough as UN sanctions lifted. https://www.bbc.com/news/world-africa-46193273 (Accessed 6 September 2020).
[2] AfDB (2019). Eritrea Economic Outlook. https://www.AFDB.org/en/countries/east-africa/eritrea/eritrea-economic-outlook (Accessed 6 September 2020).
[3] UNDP (2019). Analysis of the potential contributions of Colluli potash project to sustainable development goals in Eritrea https://www.danakali.com.au/images/stories/UNDP-Report-on-Colluli.pdf (Accessed 6 September 2020).
[4] BusinessWire (2019). The State of Eritrea Becomes Africa Finance Corporation’s 24th Member State. https://www.businesswire.com/news/home/20191203005841/en/State-Eritrea-Africa-Finance-Corporation%E2%80%99s-24th-Member (Accessed 5 September 2020).
[5] AfDB (2019). Eritrea Economic Outlook. https://www.AFDB.org/en/countries/east-africa/eritrea/eritrea-economic-outlook (Accessed 6 September 2020).
[6] AfDB (2020). Eritrea – Support to Technical and Vocation Education and Training (STVET) – Project Completion Report. https://www.AFDB.org/en/documents/eritrea-support-technical-and-vocation-education-and-training-stvet-project-completion-report (Accessed 5 September 2020).
Availability of data on housing finance
Eritrea is a closed country with minimal digital and online presence, effectively making it difficult to collect data on the country. The financial system is wholly owned and controlled by the government but surprisingly even the Central Bank and the largest commercial banks have no websites or digital presence. Thus, most data for the country must be collected from the World Bank and from the various United NationsAgencies working or writing on the country.
Other data on the country comes from privately published journal articles. A climate of suspicion brought about by massive state surveillance of residents ensures requests for information from Eritrea’s residents go unanswered. Somedataisobtained from websites and social media pages, mainly operated by entities outside Eritrea. However, most of these websites are seldom updated and so it is difficult to obtain new information on the country.
[1] Bank of Eritrea. http://www.boe.gov.er/ (Accessed 18 September 2020).
Urban Informality
Eritrea has been at war and has gone through regional conflicts for decades, leading to the displacement of many people in need of housing and other essential amenities.
Studies show that close to 81% of residents of small towns and 65% of the rural population are poor, while 39% of the entire population suffers from extreme poverty. Poverty and conflict have led to a proliferation of slums in Eritrea’s urban centers, mainly Asmara. Notably, the country has considerably improved sanitation and waste management through the years. The United Nations Children’s Fund (UNICEF)observes renewed commitment on the part of the government since the National Sanitation Conference in 2018, to avail hygienic as well as affordable sanitation facilities.
Moreover, impressive progress has been made in the Water, Sanitation, and Hygiene (WASH) sector, where the United Nations Development Programme (UNDP)observes a decline in open defecation (ODF) from 90% recorded in 2010 to 40% in 2019. Eritrea was in the process of achieving ODF-free status by 2022, but this has been slowed by COVID-19. Close to 52% of the population had access to clean water as of 2016. Despite major strides made by the government to improve standards of living, those living in slums feel neglected due to manifest poverty, overcrowding, poor living conditions, and limited access to urban services.
[1] Shaban A.R. (2020). Eritrea coronavirus: Expats repatriated, caseload at 251.
https://www.africanews.com/2020/07/19/eritrea-s-coronavirus-rules-chinese-italians-iranians-to-be-quarantined/ (Accessed 4 September 2020).
[2] Wementory (2020). Eritrea Corona Virus lockdown: Government bans layoffs, utility bills postponed. https://wementoryou14.org/eritrea-coronavirus-lockdown-govt-bans-lay-offs-utility-bills-postponed/
[3] Meronina (2020). https://twitter.com/meronina/status/1260439811149778946 (Accessed 4 September 2020).
[4] UNDP (2020). Support to the National Response to Contain the Impact of COVID-19. https://www.undp.org/content/dam/rba/docs/COVID-19-CO-Response/undp-rba-covid-eritrea-apr2020.pdf (Accessed 4 September 2020).
[5] Virusncov, I. (2020). Eritrea Covid-19 Cases and Deaths Statistics.
https://virusncov.com/covid-statistics/eritrea (Accessed 7 September 2020).
[6] Nation, G. (2020). Covid-19: Eritrea flattens curve in less than two months
https://nation.africa/kenya/news/africa/covid-19-eritrea-flattens-curve-in-less-than-two-months-295646 (Accessed 4 September 2020).
Additional sources
Belloni, M. (2021). Remittance Houses and Transnational Citizenship: Mapping Eritrea’s Diaspora–State Relationships.Africa Spectrum,56(1), 59-80.
Websites
Africa Development Bank: https://www.afdb.org/
Borgen Project: https://www.borgenproject.org/
CoinMill: https://www.coinmill.com/
Food and Agriculture Organization: https://www.fao.org/
The Heritage Foundation: https://www.heritage.org/
The Intergovernmental Authority on Development (IGAD): https://www.igad.int/
Making Finance Work for Africa: https://www.mfw4a.org/
NUMBEO: https://www.numbeo.com/
United Nations Human Rights Office of the High Commissioner: https: //www.ohchr.org/
Statista: htpps://www.statista.com/
Trade Economics: htpps://www.tradeeconomics.com/
UN-Habitat: https://www.unhabitat.org/
The World Bank: https://www.worldbank.org/
World Population Review: https://www.worldpopulationreview.com
United Nations Children’s Fund (UNICEF). https://www.www.unicef.org
Madote: http://www.madote.com/
