Eritrea has temporarily shut down nearly 450 private businesses, the latest in a series of moves that has sent shockwaves through the economy of the Red Sea nation.

The closures were a response to companies hoarding cash and “failing to do business through checks and other banking systems,” according to a Dec. 29 editorial published by Eritrea’s Ministry of Information on the state-run website Shabait.com.

Most of the affected businesses operate in the hospitality sector, according to the announcement, and they will remain closed for up to eight months, depending on the severity of the violations.

About 58,000 private businesses operate across the country, according to the government; less than 1 percent was affected by the recent closures.

Replacing the currency

The government has taken other steps in recent years to reassert control over the economy.

In 2015, Eritrea mandated that citizens exchange all notes of the currency, the nakfa, for new notes. The government also imposed financial restrictions, including limits on the amount of cash that could be withdrawn from bank accounts or kept in private hands, according to multiple reports.

Business owners complained about the restrictions, and reports from inside the country indicate the rules have altered Eritrea’s black market exchange rate, which affects the price of many goods.

State control

Tesfa Mehari, a professor of economics in England, said the Eritrean government wants a state-owned economy. That’s a trap many other countries have fallen into that generally leads to economic failure, Mehari said.

“The government cannot develop the economy. Only the people can do that,” Mehari told VOA’s Tigrigna service. “The government can only be a facilitator. There hasn’t been a country in the world that developed because of government control.”

He also said that the closures harm people’s trust in the government and in banking institutions. 

“At the end of the day, if the people of Eritrea want to develop the economy of the country, they can only work based on trust, especially with banks. What you have with banks is a matter of oath,” Mehari said.

Compounding this mistrust, he added, is that the government’s actions aren’t backed by a specific law or decree that is publicly available for all to read.

In a statement, the government also acknowledged shortcomings in modernizing its banking sector with up-to-date technology and relevant expertise, another potential impediment to confidence in the system.

In contrast, Ibrahim Ibrahim, an Eritrean-born accountant who supports the government, said the actions are needed to fight inflation and stabilize the currency.

“I don’t think the Eritrean government is trying to control the economy, and I don’t think that’s the current environment,” said Ibrahim, who is based in Washington, D.C. “However, there might be a situation where the government is taking measures to adjust things that are not normal and turn it into normalcy as per usual.”

He said any government has the right to regulate its currency and the businesses operating within its borders.

“When these businesses are given permission to work, that means they’re entering a contract,” he said. “At the core of entering into such agreements is that the businesses work within the legalities and the laws in place. If these businesses are not working according to the law, the government is going to take appropriate measures.”
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