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Ethiopia-Eritrea: After the low-hanging fruit

Ethiopia-Eritrea: After the low-hanging fruit

Stepping off the plane in Asmara, Eritrea’s modest capital, Ethiopian prime minister Abiy Ahmed was welcomed as a returning hero amid banners carrying his name, brotherly hugs and a long red carpet.

A few months ago these scenes would have been unthinkable. Nevertheless the northeast-African neighbours have found a way to overturn a near 20-year military standoff in a matter of days. Since Abiy’s visit, Eritrean president Isaias Afwerki has returned the favour in Addis Ababa, embassies have been re-opened and inter-country flights resumed.Yet between various garland-clad photo opportunities many are wondering exactly how this new relationship will pan out.

Without a doubt any resumption of diplomatic and economic ties spells good news for Ethiopia and Eritrea and the region in general. After the celebrations are over, however, it remains to be seen whether the relationship will bear any real and meaningful fruit.

Cooperation and conflict

Perhaps the best way to project into any future economic ties is by understanding the delicate and complex link between Addis Ababa and Asmara. For the most part, the relationship has been formed and defined through personal connections. Afwerki and Meles Zenawi, Ethiopia’s former prime minister, formed close ties while fighting Mengistu Haile Mariam’s communist regime in the bush. The two leaders spoke the same Tigrinya language and were from roughly the same region.

In fact, Afwerki’s Eritrean forces, by far the better military force at the time, helped train Zenawi’s Tigrayan People’s Liberation Front (TPLF). After the regime was defeated and the liberation forces assumed power these ties continued into Eritrean statehood in the 1990s. Indeed the economies of both countries, having been one for so long, were heavily intertwined. Bilateral agreements, many of which benefited Eritrea, were hashed out and a free-trade area, partial customs union, and monetary union created.

The Assab refinery in Eritrea is a prime example. The refinery was built by Ethiopia’s Haile Selassie when Ethiopia and Eritrea were part of the same country. After Eritrea’s secession, Ethiopia transferred ownership of the refinery to Asmara. Under a signed agreement, Ethiopia could continue using the refinery, while providing petroleum products for both countries. The IMF reported that it wasn’t necessary for Eritrea to spend any foreign currency on importing petroleum goods.

Ethiopia, a land-locked country, also had to pay fees for using Eritrea’s Red Sea Assab and Massawa ports through which much of the country’s foreign trade was channelled. Finally, Ethiopia’s new government extended tariff protection to Asmara’s manufacturing sector, following on from previous policies to protect domestic manufacturers by imposing high tariffs on imported goods, even though Eritrea had become a separate country. 

Yet Zenawi and Afwerki’s relationship was defined by mutual suspicion and competition as much as cooperation. As Eritrea began to ask more from Ethiopia for using its facilities Zenawi started to look elsewhere and relations worsened. Afwerki claimed Ethiopia used Eritrea’s ports for free and demanded a 10% increase on petroleum products and an increased fee for refinery use. Indeed, an often overlooked precursor to the 1998 Eritrean-Ethiopian war was economic disagreement.

Certainly, the border dispute at Badme was the spark, but grievances may have run deeper than mere territorial ambitions. In this sense the model that Ethiopia and Eritrea can refer to in terms of economic cooperation may not inspire much confidence. Afwerki, still in power, is a tough customer. After declaring “what we miss is to hug our brothers in Asmara” the real test for Abiy will be the negotiation table. Indeed, the 1998 war swiftly brushed many of the important questions pertaining to how Ethiopia and Eritrea should cooperate under the table.

These questions remain unanswered. “When Eritrea split from Ethiopia it basically created a messy divorce over what was originally one country,” says Bronwyn Bruton, deputy director of the Atlantic Council’s Africa Center. “The two countries never really answered those questions over how Eritrea should split from Ethiopia.”

That said, three things have changed which may lessen some of the former bottlenecks and ease negotiations. Eritrea, considered in the 1990s as the stronger economy, is now firmly on the back foot after years of isolation and may have to adopt a more flexible stance. The debt owed to Eritrea during the liberation fight is now spent. Finally, Zenawi and Afwerki’s complicated relationship is no longer an issue. In fact, the animosity between the TPLF and Afwerki that led to one of Africa’s longest military standoffs has now been decisively and resolutely overturned with the arrival of Abiy. Not of the Tigrayan elite, Abiy, an Oromo, has brought a fresh face to the table.

Ethiopia’s growth trajectory

The rapprochement with Eritrea, if fully realised, opens up a number of opportunities for an Ethiopia currently in the early stages of a new economic model. Although Ethiopia has logged some of the world’s highest growth rates over the last decade the government is facing a balance of payments deficit and currency crisis. Recent moves to open up the predominantly state-led economy have included privatising parts of the banking and telecoms sectors and even the unassailable Ethiopian Airlines.

Improving access to the ports has equally been a key strategy. A high-speed railway funded by China was built between Addis Ababa and Djibouti to better push goods to a port which handles over 90% of Ethiopia’s trade. The government has been eyeing numerous other ports along the Red Sea and bought a stake in Somaliland’s Berbera port earlier this year. Ahmed Soliman, Research Associate at London-based think-tank Chatham House, situates the rapprochement within this framework. “It’s part of this economic growth trajectory for Ethiopia where it is diversifying its port access for its own market,” he says. “Eritrea can be part of that. In fact, Eritrea was long seen as vital for that kind of activity.” Addis Ababa, therefore, will presumably be looking to re-engage with the Eritrean ports of Assab and Massawa.   

Manning the border zone around Badme has also been costly for both countries. For Eritrea, with a small population, defending against Ethiopia has stifled the entire economy. Indeed, life-long military service has displaced labour from other sectors and led to the well-documented flight of the country’s youth.

For Ethiopia, although official figures have never been released, Bruton estimates Addis Ababa has 80,000 troops in the militarised zone. This, she argues, has long angered Ethiopia’s other groups like the Amhara and Oromo who see the conflict as a petty fallout between Tigrayans. “These groups don’t see why they are wasting so many resources keeping troops on the border,” she says. Demilitarising the border then will significantly free up labour and capital for both countries. 

Yet, in terms of strategy, very little is known of Abiy’s intentions after the fanfare has subsided. “The real questions is Abiy Ahmed,” says Bruton. “No one knows what his views are. I don’t know how much time he has spent thinking about these issues.” Similarly the prime minister’s ability to follow through on any vision depends on his ability to draw consensus from his coalition Ethiopian People’s Revolutionary Democratic Front. Resentful about the loosening of its hold on power, the TPLF can be expected to offer some form of resistance.

Eritrean thaw?

Eritrea has much to gain. The country has suffered heavily under UN sanctions and a resulting lack of investment. Despite GDP growing healthily since 2008 – reaching a high of 8.7% in 2011 – rejoining the international community will work  wonders for Eritrea’s economy and its citizens. Bruton argues that Ethiopia’s regional clout and strong relationship with the US in combatting terrorism in the Horn of Africa was the main reason behind Eritrea’s isolation. While human rights abuses certainly played a part, their extent in relation to neighbouring countries including Ethiopia would not normally suggest sanctions, she says. “Ethiopia was why Eritrea was out in the cold and if Ethiopia is no longer doing that then Eritrea will definitely come back into the Intergovernmental Authority on Development [regional trade bloc], begin to trade again and the stigma of investment into Eritrea will lift.” Sanctions are similarly expected to be lifted.

Another significant barrier to international investment is the country’s shady labour situation where the government has been accused of forcing thousands to work in the military or other state jobs without being paid. This reputation has unsurprisingly kept investment at arm’s length. “Companies that invest in Eritrea pay a heavy reputational cost,” says Bruton. “If Eritrea can demobilise the national service problem or at least normalise it so it’s not indefinite conscription then that would really provide a good climate for investors.” However, while demilitarisation should motivate some reform or change, Afwerki is the real lynchpin and has a reputation for sticking to his guns. 

Using Ethiopian money to regenerate the country’s ports should also be a key priority for Afwerki. At the same time, his intent going into the rapprochement is no clearer than Abiy’s. The Eritrean president is well known for his suspicion vis-à-vis the international community and has in the past chosen to ignore promising opportunities to develop his country.

Donald Rumsfeld, the former US secretary of defence, spent a long while lobbying Afwerki to give up the border dispute in exchange for a lucrative partnership with Washington, including development of ports. Afwerki rejected the offer seeing his ideological goals as more important. Equally, while some partnerships with Gulf States including Saudi Arabia and the United Arab Emirates have been formed, these too have been underutilised. “Eritrea has had opportunities to develop its ports; it has had a raft of engagement with other countries,” says Ahmed. “But it’s not really chosen to take full advantage of any of them.” Perhaps now the border dispute has been solved Afwerki’s steadfastness may give way to economic imperatives. “Things might move forward in that regard,” comments Ahmed. “It’s difficult to see how. But at the same time I’ve been surprised in the region recently.”

Assuming the resolution of the border dispute leads to a meaningful rapprochement between Ethiopia and Eritrea, the two countries have much to offer each other. Realising these opportunities, however, will be a challenging task for both leaders.

Tom Collins

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