Background:
Eritrea was awarded to Ethiopia in 1952 as part of a federation. Ethiopia's annexation of Eritrea as a province 10 years later sparked a 30-year struggle for independence that ended in 1991 with Eritrean rebels defeating governmental forces; independence was overwhelmingly approved in a 1993 referendum. A two-and-a-half-year border war with Ethiopia that erupted in 1998 ended under UN auspices on 12 December 2000. Eritrea currently hosts a UN peacekeeping operation that is monitoring a 25 km-wide Temporary Security Zone on the border with Ethiopia. An international commission, organized to resolve the border dispute, posted its findings in 2002 but final demarcation is on hold due to Ethiopian objections.

Economy - overview:
Since independence from Ethiopia on 24 May 1993, Eritrea has faced the economic problems of a small, desperately poor country. Like the economies of many African nations, the economy is largely based on subsistence agriculture, with 80% of the population involved in farming and herding. The Ethiopian-Eritrea war in 1998-2000 severely hurt Eritrea's economy. GDP growth fell to zero in 1999 and to -12.1% in 2000. The May 2000 Ethiopian offensive into northern Eritrea caused some $600 million in property damage and loss, including losses of $225 million in livestock and 55,000 homes. The attack prevented planting of crops in Eritrea's most productive region, causing food production to drop by 62%. Even during the war, Eritrea developed its transportation infrastructure, asphalting new roads, improving its ports, and repairing war damaged roads and bridges. Since the war ended, the government has maintained a firm grip on the economy, expanding the use of the military and party-owned businesses to complete Eritrea's development agenda. Erratic rainfall and the delayed demobilization of agriculturalists from the military kept cereal production well below normal, holding down growth in 2002. Eritrea's economic future depends upon its ability to master social problems such as illiteracy, unemployment, and low skills, and to open its economy to private enterprise so the diaspora's money and expertise can foster economic growth.

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