Investing in Eritrea

Proclamation No. 59/1994 provides a legal basis for investment in Eritrea, but practical access is more restrictive than the general wording of the law suggests. Many sectors are effectively closed or subject to conditions that are not transparently published and may be negotiated for individual projects. Foreign direct investment means capital committed to a business or project with an ownership or control interest. It usually requires registration or certification, business and sector approvals, a project contract and sometimes a local or state participation structure. The Eritrea Investment Center is responsible for investment information, certification, promotion, monitoring and advice and reports directly to the Office of the President. Its procedures are not described in a consistently transparent public standard process, so each project requires direct verification with the relevant bodies. Mining is the most significant formal foreign-investment channel. Mining rules introduced in 2011 give ENAMCO a 10% participation in a foreign mining project and an option to acquire a further 30%. A mining concession, project agreement, export terms and any state or local participation must therefore be examined together. Agriculture, fisheries, energy, manufacturing, infrastructure and tourism are also project- and approval-dependent. Land is state-owned. A project generally relies on a lease, concession or permit rather than assumed freehold ownership. An investment in property must therefore be checked for the exact use right, duration, transfer conditions and protection against competing claims. Eritrea does not have reliably documented local equivalents of a public securities exchange, regulated retail broker network, investment fund, ETF market or broadly accessible standard securities account. Informal foreign-exchange, gold or goods trading should not be treated as a regulated investment market. Bank deposits, foreign-exchange services and financing belong primarily to banking and should not be confused with securities investing. The law provides for foreign-currency accounts, retention of export proceeds and transfers of profits, dividends, liquidation proceeds and proceeds from selling an interest, subject to banking rules. In practice, the nakfa is not freely convertible, access to foreign currency is limited and profit repatriation can be restricted. Mining projects may receive different treatment. No general transfer deadline, quota or guaranteed exit should be assumed. Project costs can include registration, licensing, concessions, legal review, due diligence, tax, customs, foreign-exchange and transfer charges. Due diligence should cover the approval and concession chain, ownership and partner structure, land and water rights, export and repatriation conditions, tax and customs treatment, contract protection, counterparty capacity, labour and human-rights exposure, sanctions, infrastructure, political intervention, regulatory change, possible closure or expropriation and the practical exit path. Low transparency, weak independent legal enforcement, illiquidity, currency and transfer risk, commodity dependence and political volatility can make a locally concentrated investment substantially harder to protect or sell than a diversified market investment.