Economy
Real GDP (2004 est.): $700 million.
Annual growth rate (2005 est.): 4.8%.
Per capita income: $900 (on a purchasing power parity basis); per capita GNI (World Bank Atlas method), 2004 est. $180.
Avg. inflation rate (2004 est.): 25%.
Mineral resources: Gold, copper, iron ore, potash, oil.
Agriculture (12% of GDP in 2004): Products--millet, sorghum, teff, wheat, barley, flax, cotton, papayas, citrus fruits, bananas, beans and lentils, potatoes, vegetables, fish, dairy products, meat, and skins. Cultivated land--10% of arable land.
Industry (25% of GDP in 2004): Types--processed food and dairy products, alcoholic beverages, leather goods, textiles, chemicals, cement and other construction materials, salt, paper, and matches.
Trade: Exports (2005 est.)--$12 million: skins, meat, live sheep and cattle, gum arabic. Major markets--Middle East (Saudi Arabia, Yemen), Europe (Italy), Djibouti, and Sudan. Imports (2005 est.)--$474 million: food, military materiel, and fuel, manufactured goods, machinery and transportation equipment. Major suppliers--U.A.E., Saudi Arabia, Italy, Germany, Belgium.

GEOGRAPHY
Eritrea is located in the Horn of Africa and is bordered on the northeast and east by the Red Sea, on the west and northwest by Sudan, on the south by Ethiopia, and on the southeast by Djibouti. The country has a high central plateau that varies from 1,800 to 3,000 meters (6,000-10,000 ft.) above sea level. A coastal plain, western lowlands, and some 300 islands comprise the remainder of Eritrea's landmass. Eritrea has no year-round rivers.

The climate is temperate in the mountains and hot in the lowlands. Asmara, the capital, is about 2,300 meters (7,500 ft.) above sea level. Maximum temperature is 26^o C (80^o F). The weather is usually sunny and dry, with the short or belg rains occurring February-April and the big or meher rains beginning in late June and ending in mid-September.

ERITREA ECONOMY
The Eritrean economy is largely based on agriculture, which employs 80% of the population but currently may contribute as little as 12% to GDP. Agricultural exports include cotton, fruits and vegetables, hides, and meat, but farmers are largely dependent on rain-fed agriculture, and growth in this and other sectors is hampered by lack of a dependable water supply. Worker remittances and other private transfers from abroad currently contribute about 32% of GDP.

While in the past the Government of Eritrea stated that it was committed to a market economy and privatization, the government and the ruling PFDJ party maintain complete control of the economy. The government has imposed an arbitrary and complex set of regulatory requirements that discourage investment from both foreign and domestic sources, and it often reclaims successful private enterprises and property.

After independence, Eritrea had established a growing and healthy economy. But the 1998-2000 war with Ethiopia had a major negative impact on the economy and discouraged investment. Eritrea lost many valuable economic assets in particular during the last round of fighting in May-June 2000, when a significant portion of its territory in the agriculturally important west and south was occupied by Ethiopia. As a result of this last round of fighting, more than one million Eritreans were displaced, though by 2007 nearly all have been resettled. According to World Bank estimates, Eritreans also lost livestock worth some $225 million, and 55,000 homes worth $41 million were destroyed during the war. Damage to public buildings, including hospitals, is estimated at $24 million. Much of the transportation and communication infrastructure is outmoded and deteriorating, although a large volume of intercity road-building activity is currently underway. The government sought international assistance for various development projects and mobilized young Eritreans serving in the national service to repair crumbling roads and dams. However, in 2005, the government asked the U.S. Agency for International Development (USAID) to cease operations in Eritrea.

According to the International Monetary Fund (IMF), post-border war recovery was impaired by four consecutive years of recurrent drought that have reduced the already low domestic food production capacity. The government reports that harvests have improved, but it provides no data to support these claims. Eritrea currently suffers from large structural fiscal deficits caused by high levels of spending on defense, which have resulted in the stock of debt rising to unsustainable levels. Exports have collapsed due to strict controls on foreign currencies and trade, as well as a closed border with Ethiopia, which was the major trading partner for Eritrea prior to the war. In 2006, Eritrea normalized relations with Sudan and is beginning to open the border to trade between the two countries. Large and persistent transfers from Eritreans living abroad offer significant support to the economy.

The port in Massawa has been rehabilitated and is being developed. In addition, the government has begun on a limited basis to export fish and sea cucumbers from the Red Sea to markets in Europe and Asia. A newly constructed airport in Massawa capable of handling jets could facilitate the export of high-value perishable seafood.

DEFENSE
During the war for independence, the EPLF fighting force grew to almost 110,000 fighters, about 3% of the total population of Eritrea. In 1993, Eritrea embarked on a phased program to demobilize 50%-60% of the army, which had by then shrunk to about 95,000. During the first phase of demobilization in 1993, some 26,000 soldiers--most of who enlisted after 1990--were demobilized. The second phase of demobilization, which occurred the following year, demobilized more than 17,000 soldiers who had joined the EPLF before 1990 and in many cases had seen considerable combat experience. Many of these fighters had spent their entire adult lives in the EPLF and lacked the social, personal, and vocational skills to become competitive in the work place. As a result, they received higher compensation, more intensive training, and more psychological counseling than the first group. Special attention was given to women fighters, who made up some 30% of the EPLF's combat troops. By 1998, the army had shrunk to 47,000.

The moves to demobilize were abruptly reversed after the outbreak of war with Ethiopia over the contested border. During the 1998-2000 war, which is estimated to have resulted in well over 100,000 casualties on the two sides, Eritrea's armed forces expanded to close to 300,000 members, almost 10% of the population. This imposed a huge economic burden on the country. The International Monetary Fund (IMF) estimates that the economy shrank by more than 8% in 2000, although it rebounded somewhat in 2001. The war ended with a cessation of hostilities agreement in June 2000, followed by a peace agreement signed in December of the same year. A UN peacekeeping mission, the UN Mission in Ethiopia and Eritrea (UNMEE), was established and monitors a 25-kilometer-wide Temporary Security Zone separating the two sides. Per the terms of the cessation of hostilities agreement, two commissions were established: one to delimit and demarcate the border and the other to weigh compensation claims by both sides. The Eritrea-Ethiopia Boundary Commission announced its decision in April 2002. Demarcation was expected to begin in 2003, but despite attempts to progress, it has been delayed by a stalemate between Ethiopia and Eritrea.

The government has been slow to demobilize its military after the most recent conflict, although it formulated an ambitious demobilization plan with the participation of the World Bank. A pilot demobilization program involving 5,000 soldiers began in November 2001 and was to be followed immediately thereafter by a first phase in which some 65,000 soldiers would be demobilized. This was delayed repeatedly. In 2003, the government began to demobilize some of those slated for the first phase; however, the government maintains a "national service" program, which includes most of the male population between 18-40 and the female population between 18-27. The program essentially serves as a reserve force and can be mobilized quickly. There are estimates that one in twenty Eritreans actively serve in the military.

Presently, the U.S. has no military-to-military cooperation with Eritrea.