AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT FUND ERITREA 2006-2007 COUNTRY STRATEGY COUNTRY DEPARTMENT NORTH, EAST AND SOUTH REGIONS MAY 2006 SCCD: G. G. TABLES OF CONTENTS EXECUTIVE SUMMARY ..............................................................................................................iv 1. INTRODUCTION....................................................................................................................1 2. COUNTRY CONTEXT...........................................................................................................3 2.1 Political Context.........................................................................................................................3 2.2 Macroeconomic And Structural Context....................................................................................4 2.3 Private Sector Business Climate And Issues..............................................................................6 2.4 Poverty, Social Context And Crosscutting Themes ...................................................................8 2.5 Medium Term Economic Outlook And External Environment ...............................................15 3. NATIONAL DEVELOPMENT AGENDA AND MEDIUM TERM FRAMEWORK....19 3.1 Key Elements Of The Government’s Development Agenda ...................................................19 3.2 Assessment Of Implementation Progress Of The Agenda.......................................................21 3.3 The Partnership Framework .....................................................................................................23 3.4 Challenges And Risks ..............................................................................................................23 4. BANK GROUP COUNTRY ASSISTANCE STRATEGY.................................................25 4.1 Country Context And Strategy Selectivity...............................................................................25 4.2 Portfolio Management And Lessons From Previous Csp ........................................................26 4.3 Csp Area Of Focus ...................................................................................................................27 4.4 Csp Framework ........................................................................................................................29 4.5 Regional Dimensions Of Bank Group Intervention.................................................................30 4.6 Bank Group Assistance Strategy..............................................................................................30 4.7 Partnership And Harmonisation ...............................................................................................32 5. RESULT-BASED MONITORING AND EVALUATION.................................................32 5.1 Monitoring Of Csp Outcomes And Bank Group Performance ................................................32 5.2 Managing Risks........................................................................................................................32 5.3 Country Dialogue Issues..........................................................................................................33 6. CONCLUSIONS AND RECOMENDATION .....................................................................35 6.1 Conclusions ..............................................................................................................................35 6.2 Recommendation......................................................................................................................35 BOXES Box 1: Constraints to the CSP Preparation..........................................................................................2 Box 2: Key Features of Eritrea ............................................................................................................2 Box 3: Peace Process...........................................................................................................................3 Box 4: Summary of key elements of government agenda................................................................21 Box 5: Donor Support by Sector .......................................................................................................23 TABLES Table 1: Eritrea Selected Macro Indicators .........................................................................................4 Table 2: Comparison of selected East African Countries. Ranking 2006 ...........................................7 Table 3: Selected Social Indicators for 2003.......................................................................................8 Table 4: Eritrea Millennium Development Goals .............................................................................11 Table 5: CSP Framework and linkages between selected focus area and activities for Income generating opportunities and poverty reductio...................................................................29 Table 6: CPIA Benchmarks to Monitor Improvement of Country Performance ..............................31 ANNEXES Annex 1: ERITREA SUMMARY OF BANK GROUP OPERATIONS .............................................. Annex 2: MAP OF THE STATE OF ERITREAANNEX II................................................................. Annex 3: BANK GROUP COUNTRY STRATEGY FRAMEWORK MATRIX 2005-2007 ............. Annex 4: SELECTED MACROECONOMIC INDICATORS ............................................................. i ACRONYMS AND ABBREVIATIONS ACORD : Agency for Co-operation and Research in Development ADB : African Development Bank ADF : African Development Fund ADF IX : Ninth General Replenishment of ADF AFRITAC : Africa Regional Technical Assistance Centre AGOA : African Growth and Opportunity Act AIBE : Agriculture and Industrial Bank of Eritrea AIDS : Acquired Immune Deficiency Syndrome APPR : Annual Portfolio Performance Review BADEA : Arab Bank for Economic Development in Africa CBE : Central Bank of Eritrea CEDAW : Convention on Elimination of all forms of Discrimination Against Women CFAA : Country Finance Accountability Assessment CLS : Core Labour Standards CDS : Comprehensive Development Strategy COMESA : Common Market for Eastern and Southern Africa CSP : Country Strategy Paper DANIDA : Danish Development Agency ECDF : Eritrean Community Development Fund EDIB : Eritrean Development and Investment Bank E-EBC : Eritrea-Ethiopia Border Commission EEC : Eritrea Electricity Corporation EIA : Environmental Impact Assessment EMA : Eritrean Medical Association EPLF : Eritrean Peoples Liberation Front EPRDF : Ethiopia Peoples Revolutionary Democratic Front ERN : Eritrean Nakfa ERP : Economic Recovery Programme ESDP : Educational Sector Development Programme ESW : Economic and Sector Work EU : European Union FIU : Financial Intelligence Unit FSS : Food Security Strategy FY : Financial Year GDA : Government Development Agenda GDP : Gross Domestic Product GNP : Gross National Product GOE : Government of Eritrea HAMSET : HIV/AIDS, Malaria, Sexually Transmitted Diseases and Tuberculosis Control HCBE : Housing and Commerce Bank of Eritrea HDI : Human Development Index HDR : Human Development Report HIPC : Highly Indebted Poor Countries ICAO : International Civil Aviation Organisation IDA : International Development Association IDPs : Internally Displaced Persons IGAD : Inter-Governmental Authority on Development ILO : International Labour Organisation IMF : International Monetary Fund ii I-PRSP : Interim Poverty Reduction Strategy Paper ISO : International Organisation for Standardisation LSMS : Living Standards Measurements Survey MDG : Millennium Development Goal MTDP : Medium Term Development Plan MTEF : Medium-Term Expenditure Framework NBE : National Bank of Eritrea NCEW : National Confederation of Eritrean Workers NEPAD : New Partnership for Africa’s Development NEPFP : National Economic Policy Framework and Programme NER : Net Enrolment Rate NGAP : National Gender Action Plan NGO : Non-Governmental Organisation NICE : National Insurance Corporation of Eritrea NPL : Non- performing Loans NSEO : National Statistics and Evaluation Office NUEW: National Union of Eritrean Women OPEC : organisation of Petroleum Exporting Countries PBL : Policy Based Lending PCR : Project/Programme Completion Report PEM : Public Expenditure Management PER : Public Expenditure Review PFDJ : People’s Front for Democracy and Justice PFP : Policy Framework Paper PPA : Participatory Poverty Assessment PPAR : Project Performance Audit Report PPP : Private-Public Partnership PRSP : Poverty Reduction Strategy Paper RWSSI : Rural Water Supply and Sanitation Initiative SMCP : Savings and Micro Credit Programme SME : Small and Medium-Scale Enterprise TEGPRS : Transitional Economic Growth and Poverty Reduction Strategy TFR : Total Fertility Rate UA : Unit of Account UNCDF : United Nations Capital Development Fund UNDP : United Nations Development Programme UNIDO : United Nation Industrial Development Organisation USAID : Unites States Agency for International Development US$ : United States Dollars iii EQUIVALENTS AND ABBREVIATIONS CURRENCY EQUIVALENTS (MAY 2006) Currency = Eritrean Nakfa (ERN) UA 1.0 = 17.3244 Nakfa US$ 1.0=15.00 Nakfa UA 1.0= US$ 1.45186 WEIGHTS AND MEASURES (Metric System) 1 Kilogramme (Kg) = 2.2 pounds (1bs) 1metric tonne (MT) = 2, 205 lbs FISCAL YEAR January-December iv EXECUTIVE SUMMARY 1. Introduction: The Boards of Directors approved the 2002-2004 Country Strategy Paper (CSP) (Document ADB/DB/WP/2003/152-ADF/BD/WP/2003/191) in February