| By: Staff Reporter August 21, 2018 – In any renewed relations like that happening between Ethiopia and Eritrea, every decision with economic, diplomatic, trade and people to people interactions should be handled with at most care and governed by win-win agreements. With the election of Dr. Abiy Ahmed as Prime Minister of Ethiopia in April this year, the governments of Eritrea and Ethiopia have agreed to normalize relations, ending two decades of hostilities between their governments. Commercial flights between Addis Ababa and Asmara resumed immediately following visits by both leaders, and various agreements have been signed to normalize ties between these longtime foes. When Eritrea declared its independence from Ethiopia 27 years ago, there were a number of challenges unresolved between the two Horn of African nations. As two nation states, they did not have clear agreements that governed their trade relations, mobility of people, economic and diplomatic ties. The absence of clear agreements, especially on import-export trade and currency issues, coupled with disagreement between their leaders, led the two nations into one of the deadliest wars in the region, a war that claimed over 80,000 lives from both sides. Many people believe that the border issue was used as a pretext by Eritrea to launch war against its big neighbor, Ethiopia. Taking the privileges given to it by the then leaders in Ethiopia, Eritrea used Ethiopia as major source for raw materials and agricultural products, buying with Ethiopian currency, tax exempt, and then exporting them for foreign currency. This continued for nearly a decade until the two-year bloody war broke out in 1998, followed by 18 years no war, no peace situation. Between the time of referendum for independence and the border war in 1998, Eritrea had been importing coffee, oil seeds and other agricultural products from Ethiopia for export to foreign markets. As result, at one point point, Eritrea became one of the leading exporters of coffee in Africa, at the expense of Ethiopia, although the small Horn of African nation grew no coffee of its own. In the renewed relations, the government in Addis Ababa needs to assign competent negotiators who can bargain with the more seasoned Eritrean leaders to ensure that Ethiopia gets fair trade agreement and stable long-term relations, so previous mistakes are not repeated. Ethiopian leaders would be wise to go step by step, rather than make comprehensive but rush decisions, and they should make sure that they are tranparent with the public, so no measures are taken in their name and against them for political or other purposes. Unless Ethiopia establishes fair cross-border trade agreements and implement those accords, Ethiopia would come out a loser yet once again, and that would pose a serious threat to the renewed relations between the two countries. Eritrea needs Ethiopia as much (if not more) as Ethiopia needs it. With a population of about eighteen times that of Eritrea, Ethiopia is extremely vital to the economic well-being of tiny Eritrea. Absent normalized trade with Ethiopia, Eritrea will be at a severe economic disadvantage as we all have witnessed in the last two decades or so. Long-term, Eritrea will also need Ethiopia for better security and regional stability, just as much as Djibouti and the Somalia states need it. Unlike two decades ago, Ethiopia has also established well-proven sea outlet alternatives through Djibouti, Somalia states and Kenya. Extensive tranporation routes have been built in the last two decades, linking Ethiopia to its other neighbors, including the high speed train to Djibouti. Ethiopia should, therefore, use these alternatives to negotiate favorable agreements with all neighboring countries, including Eritrea. Another challenge the two nations will face is the issue of currency. Currently, one US Dollar exchanges for 27.30 Birr in Ethiopia and 15 Naqfa in Eritrea. Clearly, there is high discrepancy between the valuation of these two currencies. Whereas Ethiopia’s currency exchange is close to market rates, Eritrea’s exchange rate seems to be held very low artificially by the government. In real currency market, it is unlikely that an Ethiopian birr will be valued less than one Nakfa unless the latter is controlled by the government in Asmara, which, as we all know, runs a command economy. One quintal (100kg) of teff, a staple grain in Ethiopia, can be bought for 2,700 birr on average in Addis Ababa, which is less than $100. Whereas the same amount of commodity is sold in Eritrea for at least four times as much. Thus, unless and until problems related to the exchange rate between the two currencies are properly addressed, trading with local currencies will create huge trade balance issues and become serious challenge for the forthcoming friendly relations between the two nations. In the absence of fair and proper foreign exchange valuations for the Nakfa, Ethiopia should insist on trading through the US dollar, just like what it does currenly with other countries. Considering the challenges to sort out exchange rate issues quickly, it will prudent to start trading in dollars until peace and trust are established and durable ties are demonstrated. It is to be recalled that the issue of currency was one of the factors that pushed the two states into war after Ethiopia changed its currency which led Eritrea into confusion and its trade relations with Ethiopia collapsed. Ethiopia, with the population of over 100 million, has a huge economy, far bigger and more robust than its neighbor, Eritrea, with estimated population of six million most of whom are believed to be dependent on foreign remittances. Eritrea would import industrial and agricultural products from its big neighbor and Ethiopia would import almost nothing but could be used as a dumping ground of contraband goods coming from Eritrea, as was the case two decades ago. Therefore, Ethiopian authorities should be smart enough to sign and implement sound trade agreements to the benefit of both peoples and governments. Prospective Ethiopian investors could also feel insecure to spend their money and resources in Eritrea where one-man rule has been the case and reliable institutions and systems that govern Foreign Direct Investment (FDI) are absent. Ethiopia should, therefore, ensure that property rights of its citizens are protected and respected, including demanding compensation for those Ethiopians who were victims of unlawful seisures inside Eritrea and its ports decades ago. The issue of border demarcation between the two states still remains very sensitive. The government in Addis Ababa has agreed to implement the Algiers agreement and decisions of the Ethio-Eritrea Boundary Commission which awarded disputed territories, including the town of Badme, to Eritrea. The rights of those people who live in Badme town and other places should be carefully addressed and their voices heard if there is going to be a lasting peace. Here, both governments should come up with a win-win agreement. Failing to do so could negatively affect renewed relations between the two countries in the years to come. With the opening of the border between the two countries, Eritrea would benefit hugely from robust commerce through its ports and relatively lower-priced grains and fruits coming from Ethiopia. Ethiopia, on the other hand, will enjoy the Eritrean market and alternate sea outlets for its import-export business using the ports of Massawa and Assab. The social and trade interactions between people living along the border on both sides would also change for the better as war threat is finally over. |