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Eritrea: Solving credit access problems benefits local agriculture

Written By | Mar 18, 2018

Eritrea Map

WASHINGTON D.C. March 19, 2018. – The importance of credit access in Eritrea, a country located in Northeast Africa, includes the more modern features of finance associated with world economic development. This is significant and pivotal to Eritrea’s poverty reduction strategy. It is undeniable that a clear, positive correlation exists between increasing credit access and  the overall level of the money supply circulating in the economy.

Which in turn drives consumer demand, spurring increased productivity.

World economic poverty assessments measure general access to basic needs such as food, clothing, shelter and education. Access to credit, separate from other forms of philanthropic work, provides a systematic, yet rudimentary means of assisting small business enterprises in conjunction with local farmers in Eritrea attain resources to feed larger populations of its citizens in the future.

Eritrea bank note
Agriculture and Credit Access in Eritrea

Agriculture accounts for approximately 17 percent of Eritrea’s Gross Domestic Product (GDP) and is the primary source of income for most people in Eritrea. Estimates are that 80 percent of the total population depend on farming as a livelihood.

This newly developed access to credit strategy provides farmers with the tools necessary to implement enhanced agricultural measures.  And improved farming techniques also help increase production above a basic subsistence level.

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The focus on agriculture is important because generating an adequate food supply is a critical element of the global poverty reduction agenda. (The Role of Agricultural Extension in Rural Poverty Reduction of Eritrea: An Analysis. by  Rena, Ravinder ICFAI Journal of Agricultural Economics. Oct2007, Vol. 4 Issue 4, p62-77. 16p. 3 Charts.)

In addition, modernizing the micro-financing process through the implementation of a series of reforms, as those instituted in other parts of the region, help to further accelerate private sector growth.

Image result for credit cards
Reasons for limited credit access

A 2002 study published by the University of Groningen on the problem of credit access in Eritrea suggests that there are at least four reasons for the limited credit access in the East African country. Problems include collateral, conservative lending practices, inadequate business reporting and limited human resource skills related to financial management.

In addition, the newly established country struggled with a ballooning fiscal deficit, during the early part of the previous decade. With a reported GDP of roughly $3 billion, Eritrea experienced a debt to GDP level at over 100 percent. GDP and production, hampered by drought, inhibited economic performance and marginalized growth, making economic development difficult to manage.

These problems in conjunction with the 2007 global financial  crisis hampered the lending process. And as a result, credit access, which is determined by the available number of loans, is tight in Eritrea.

IMF Assistance

Fortunately, with technical assistance funding from the International Monetary Fund (IMF), the world’s leading organization on economic and monetary policy formulation, the four major banks essentially curbed the rising fiscal deficit. However, conservative lending practices still restrict bank lending to roughly 30 percent of cash deposits.

Presently, stabilizing the economy requires increased production that only new investments in technology can generate. Minimizing inflation is also a key consideration in formulating the perfect balance.  Constructing the right economic equation with these fundamental criteria  must be a primary target for government leaders.

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Solutions to the credit access in Eritrea problem include policy reforms that increase transparency and, along with it, all the measures associated with improving core business competencies. These structural policy reforms are an important step towards improving credit access and reducing poverty because they provide benchmarks to determine individual creditworthiness. Credit access being the fundamental means of expanding local farming and land cultivation programs.

The fight against poverty is knowledge-based.

The key is education. Elements of the learning curve delineated in terms of money management, planned structural use of capital, outcome aggrandization, stasis development, and benchmark triggers formulate what are known as strategic focus points for comprehensive business development. As those points align more closely with developed nations, the dearth of wealth defined as poverty is alleviated

Recent estimates indicate that over half the population in Eritrea live in poverty: lacking proper access to food and basic nutrition.

Kerry Baynes

Kerry Baynes is currently a Msc University West Indies, Financial Economics. As a research assistant for the New Jersey State Senate, he was responsible for research on economic, budget/fiscal issues, and the impact of tax policy. He served as a Media Strategist for Garry Cobb For Congress, in 2014 and Giordano for Assembly, in 2015. Since 2006, he acted as Manager of Alpha Strategy Group, an Urban Media Company. Currently an Associate at World Financial Group (WFG), he works to build and protect wealth for families and individuals from all walks of life.