If there is one thing we learn from the complex relationship between Ethiopia and Eritrea it is that there are many areas of sensitivity.

One of these is their economic relationship.

From de-facto independence to the border war (1991 – 1998) Ethiopians believed they had an unequal relationship with their northern neighbours. Not to put too fine a point on it, Ethiopians felt the Eritreans were fleecing them – whether it was in terms of the Nakfa-Birr exchange rate or the purchase and re-sale of Ethiopian coffee.

If relations between Asmara and Addis Ababa are to be put on a firm footing then past mistakes will need to be avoided.

This 2016 analysis by Worku Aberra is a timely reminder of these problems.

Asymmetric Benefits- The Ethio-Eritrea Common Market (1991-1998)

Below is a short extract from the article.

The EPLF, the TPLF’s strategic ally during the struggle against the Derg, thus provided the support the latter needed in the early days of its assumption of power, but that support came at a price: the transfer of Ethiopia’s resources. This support, mediated by their past friendly relationship (although at times conflictual) and shared anti-Ethiopian views, was based on mutual benefits. The TPLF required the EPLF’s military and political support, and the EPLF needed resources to embark on its ambitious plan of turning Eritrea into the Horn of Africa’s “Singapore” within two decades (Asrat, 2014; Giorgis, 2010). The reciprocal coincidence of needs resulted in the common market arrangement that benefitted the EPLF tremendously but hurt Ethiopia drastically.

So, rational choice theory surmises that as a result of the uncertainty the TPLF leadership faced during the early days of its rule, it opted to ally with the EPLF; ready to reward the EPLF with economic benefits in return for political and military assistance. But once the regime felt securely established in power in the late 1990s, a faction within the TPLF realized that it could appropriate, using the TPLF-owned companies, the benefits accruing to the EPLF, and persuaded the party to renegotiate the trade arrangement with Eritrea in 1997.

To illustrate the fight between the two fronts over who should appropriate Ethiopia’s resources, let’s take one of Asrat’s (2014) accounts. He relates a story of how the regional government of Tigray in 1992 caught thirty-eight trailer trucks loaded with sesame seeds, worth birr 38 million, attempting to cross the border to Eritrea. He alleges that this is a smuggling operation organized by the EPLF. He reports that the seeds were duly confiscated without telling us who confiscated them, but it is clear that it was the regional government of Tigray run by the TPLF under his rule. He also mentions other incidents in which the regional government of Tigray confiscated goods that were about to be smuggled into Eritrea from Ethiopia and goods smuggled into Ethiopia by the EPLF. Further, he argues that the regional government was concerned about the negative impact of imports from Eritrea on the nascent manufacturing sector in northern Ethiopia, primarily in Tigray.

These narratives exemplify the motivation behind the decision to renegotiate the agreement: to redirect the appropriation of Ethiopia’s resources from the EPLF to the TPLF. In essence, the renegotiation reflected the resolve by a faction within the TPF to restrict the EPLF’s access to Ethiopia’s economy and redirect the flow of rents to TPLF officials and to the TPLF-owned companies.

There were a few factors that triggered the dissolution of the common market. Even though the common market lasted until 1998, it lacked effective dispute settlement mechanisms to deal with the issues, conflicts, and problems that the extant agreements failed to address satisfactorily for both parties. These included Eritrea’s use of multiple exchange rates for the birr, the status of Eritreans living in Ethiopia, the distribution of petroleum products from the Assab Refinery, the EPLF’s demand for parity between the birr and its newly issued currency, the Nakfa, in 1997, and its request for the free circulation of the Nakfa in Ethiopia, plus other concerns (Asrat, 2014; Trevilli, 1999).


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