October 21, 2011

An Economic Lesson We Can Learn from Eritrea

In the midst of the banking crisis and credit collapse, one country’s development policies stand out as a lesson to the rest of us. | By Mark D. Juszczak

Eritrea, a war-ravaged land of extremes in the horn of Africa where the per capita GDP hovers around $2 a day, is an unlikely place to find lessons in economic development for wealthy western nations. And yet, in the midst of a global credit meltdown and a crush of pollution related ecological phenomena that are wrecking a higher and higher economic toll, it appears that our persistent paradigm of growth for growth’s sake is reaching its limit.

Eritrea stands out, despite a strong grip on power by the country’s sole party, People’s Front for Democracy and Justice, for one distinct principle that has managed to persist above the pressure of both internal and global politics. This principle is a strong commitment to self-reliance and virtually zero debt.

Given the unsustainable cheap price of credit over the last several years, this is of specific interest. But, if one examines the context of credit in Africa, a clearer picture emerges. Africa currently spends about $15 billion a year on debt repayments, mostly from loans given by international agencies. In addition, for every $1 that African countries receive in grants, they pay back $13 in interest on debt. Without going into the history of this debt crisis, it is sufficient to say that prudence and a long-term perspective on sustainable growth were not at the forefront of policy makers and government leaders.

Eritrea, on the other hand, has taken a different path since its independence in 1993: one that can stand out both within Africa and to the rest of the developed western world as an example. Since its independence Eritrea has been ruled by the guerilla hero of their struggle with Ethiopia, President Isaias Afewerki. The President has rejected most foreign aid and promoted an agenda of internal development: by and for Eritreans. Although there have been sporadic periods of long bread and milk lines and the economy remains largely subsistence, with over 80% of the population working in farming and herding, a number of distinctly visible results have produced a unique national profile – one that is a time capsule on the surface and a design for a sustainable future at its roots.

The New York Times ran a series of travel articles on Eritrea over the past two years. While the articles highlighted distinct tourist attractions, one paragraph stood out: “In 1994, the Eritrean government decided to rebuild the railway. It had hardly any money, and it asked for none. Retired railway workers, some in their 80’s and 90’s, came forward, and eight steam engines were painfully rebuilt, the parts made from smelted brass and iron. Eritreans were asked to return any parts they found. The lines, tunnels and bridges were repaired and rebuilt by hand. [The reporter visited] the workshops where the old men show me the ancient lathes and cutting machines that they have used to restore two more steam engines. They recycle and melt scrap metal to make parts.”

There are several economic and ecological principles that the Eritrean approach to the restoration of the railroad demonstrates:

-a preference for skills building of the native workforce instead of opting for turn-key solutions by foreigners that may be more modern but do not provide opportunities for self-development

-a respect for the intelligence and competence of Eritrean nationals by the Eritrean government

-a zero-debt approach to ground-up development

-a model of development that produces a smaller carbon footprint than focusing on building highways and importing foreign automobiles through credit

-a tremendous pride in the craftsmanship and durability of Eritrean made goods and services

-a closed loop approach to industrial projects: zero-debt and zero-waste.

These principles might appear insignificant to the technological race that liquid capital is producing in powerful western economies, but they are the cornerstone of sustainable growth. Eritrea barely sips on the hydrocarbon economy. Although this might appear to be its weakness it is really a strength. It’s nearly five million people consume approximately 5000 barrels of oil a day or 1/3 of a barrel per person per year. To put this in perspective the US consumes approximately 68 barrels of oil per person per year, over 200 times as much per person.

Precisely because it does not yet have a cumbersome hydrocarbon based infrastructure or development model, there is a great opportunity for Eritrea to develop a ‘natural capital’ economy from the ground up – focusing on conservation, solar energy, converting its steam powered rail network to electricity and developing an extensive inter-modal transport network focused on the human dimension of scale.

At the same time, Eritrea stands out as an unusual example of wisdom and prudence in government. We could all learn lot from its example.

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