In 2002, the Eritrean regime initiated an extensive ostracization campaign against Eritrea’s merchant class. Merchants were accused of war profiteering, price gouging and price fixing. Their licenses were revoked; the capital requirements increased and they were denied access to hard currency.  The open market for hard currency was shutdown with harsh penalties for those caught in the trade: a 200,000 and mandatory jail term.

As is often the case, the regime’s creation of a scapegoat was cheered by the masses who were embittered by the high cost of living.  The regime created co-ops with names like Dukan Hidri or Rit’awi dukan, names designed to exploit the esteem that the words Hidri (legacy) and ritawi (fair) invoke. The local currency, Nakfa, which had an exchange rate of 25 to 1 USD, is now fixed at 15 to 1 USD. (It is 19.5 in the hawala market.)  The businessman went broke or were exiled throughout Africa where they are prospering.

But what is the situation in Eritrean now, five years after fair prices were introduced?

We spoke to an ordinary Eritrean [name withheld].  He is married and has two children.  He lives in government subsidized housing and has an income of 2,000 nakfas.  Half of the income is from his job and the other half is from the support he gets from his family in the Diaspora (Canada, US.)

This is his monthly expense:

1. Kudar (groceries)           600.00
2. Grain                            250.00
3. Oil, soap, etc                 250.00
4. Subsidized Housing          150.00
5. Electricity                      250.00
6. Telephone                     100.00
7. Transport                       60.00
8. Children’s expenses         450.00
9. Social obligations            100.00
10. Pocket money              100.00 

Total                                2,360.00

The “ordinary Eritrean” notes the following: (a) if he, for whatever reason, loses his rent subsidy and is forced to rent in the open market, he has to pay 750 a month minimum; (b) he hates asking for money from his relatives but would not know what to do if he didn’t get it; (c) with all the tight-beltening, he is constantly running a deficit—what he receives from his relatives is used to settle a debt.

He jokes: “Maybe I should join the Somali opposition!” Asked why, he explains that the Somali opposition is staying at the government-owned hotels of Embasoira and Nyala. There is also a plan to provide them with a huge office in Asmara, with all expenses covered.

The Rise & Fall & Rise (?) Of Eritrea' Merchant Class

With the American threat of placing Eritrea in the state sponsor of terror dangling on its head, the Asmara regime is thinking of dodging the threat by inviting back all the businessmen it has chased and freeing up the market.

 

The ruling regime, whose business franchise, Red Sea Trading Corporation (RSTC), is engaged in import/export business and various hard currency generating ventures, expects to have its assets frozen if Eritrea is declared a state sponsor of terror. Businesses managed by ordinary Eritreans are less likely to face sanctions and the regime is now engaged in the process of sweet-talking people it had chased off.

If this works, it will alleviate the pressure on the regime to reform.  If it doesn’t, the government can always blame America and the price-gouging businessmen.