Eritrea Closes Hundreds of
Businesses for Bypassing Banks
January 8, 2018
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
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
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of cash that could be withdrawn from bank accounts or kept in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
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.
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
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