After a costly war in 1998 and two subsequent decades of animosity, Eritrea and Ethiopia formally agreed to settle their differences with a historic truce in September 2018. The former enemies have since basked in the peace, with their improved relations opening the door for increased trade and investment and new transport routes. But trade and security problems loom on the horizon — carrying the risk of once again souring relations between the Horn of Africa neighbors.
Peace and Prosperity
If Ethiopia and Eritrea can manage to solve their lingering issues, both countries and their respective economies would clearly benefit from international investors taking an interest in the fast-growing region that has suddenly become more stable. Improving relations have already begun to unlock new investment opportunities for Ethiopia, in particular. The supply routes to Eritrea laid out in the peace deal have given the landlocked country — which has typically relied on Djibouti for about 95 percent of its imports and exports — a way to further diversify its ports around the Horn of Africa. And other countries have started to take notice, as evidenced by Italy's recent agreement to fund a feasibility study for a 724-kilometer (450-mile) railway that would run between the Eritrean port of Massawa and Ethiopia's capital, Addis Ababa.
However, while Eritrea has tried to use the new ties to bolster its international image, its reputation as a repressive state precedes it. The country's domestic operations have changed little since the signing of the detente. Despite hopes among Eritreans that the peace deal would spark internal reforms, Eritrea's opaque and authoritarian system of government — centered around the personality of its reclusive president, Isaias Afwerki — will likely stay intact for the foreseeable future, complicating foreign investment in the meantime. That said, while Eritrea might not reap direct financial gains in the near term, the deal with Ethiopia has provided it with a significant security boon by seemingly removing the menace of its much larger neighbor and spurring the removal of costly U.N. sanctions in November 2018.
A Tumultuous History
But despite the hopes created by a tentative era of Eritrean-Ethiopian harmony, wounds from their contentious history linger, threatening the prospect of lasting peace.
From the 1960s until the 1990s, Eritrea was under the rule of Ethiopia’s tyrannical Dergue regime after being annexed by Ethiopia’s monarchy in the years following World War II. Angered by Addis Ababa’s heavy-handed policies in its newest province, Afwerki and his Eritrean People’s Liberation Force (EPLF) led a long and ultimately successful insurgency with the help of the Tigray People’s Liberation Front (TPLF), an armed liberation movement from Ethiopia's northern Tigray region.
During the war, relations between the two liberation groups initially seemed strong. Yet the ideological differences between the TPLF movement (which ruled over Ethiopia up until 2017) and Afwerki's Marxist rebel organization (which continues to preside over Eritrea to this day) became apparent in the years following Eritrea's independence, once they were faced with the day-to-day of running their governments.
Eritrea also began taking advantage of the two countries' then-currency union, which had been intended to serve as the basis of their full economic integration. Asmara started selling Ethiopian goods abroad in U.S. dollars after buying them in their shared local currency. This created a foreign currency shortage in Ethiopia, much to the irritation of Addis Ababa. When Asmara introduced its new currency, the nakfa, in 1997, Ethiopia would not allow it to be traded it at an equal equivalency to its currency, the birr. Though seemingly inconsequential at the time, this currency spat marked the start of the deterioration in their relations, ultimately leading to the outbreak of war in 1998 and the two decades of hostility that followed.
New Deal, Same Problems
With the peace deal, crossings on their shared border have reopened, bringing signs that the countries' trade history is repeating, at least to some degree. Eritreans have been traveling to northern Ethiopian cities to buy fuel using Ethiopia's local currency — taking advantage of the border towns' lack of regulations. This has exacerbated the current foreign currency shortages in Ethiopia since it imports its fuel using U.S. dollars. Additionally, there have been reports that Eritreans are buying goods in these same towns by exchanging nakfas for birrs at an equal rate, even though black market prices show the nakfa is trading at 57 or 58 to the dollar, while a dollar trades for about 28 birrs.
The euphoria of the summer peace deal has masked the unfairness of some of the deals being conducted on the ground, although some Ethiopian economists have begun to raise concerns. And as the afterglow of the detente begins to fade, it’s likely that this currency problem will emerge as a bigger issue and require Addis Ababa to weigh in. While it's natural that the two sides would have some friction points given their competing economic interests, there are several factors that could exacerbate tensions if both sides do not seek to settle their differences using clearly established mechanisms.
The Trouble With the Tigray
However, even if the two countries are able to address trade disagreements and quell Eritrea's fears of a takeover, Afwerki's contentious history with Ethiopia's Tigray elites remains a pain point. Afwerki has ruled Eritrea since independence in 1993 and was in power when relations between their countries were anything but peaceful. As a result, he still carries old wounds from the countries' tumultuous history, possibly making him more skeptical of lasting amity with Ethiopia — especially when it comes to the Tigray.
The TPLF was the dominant political and military force in Ethiopia after the defeat of the Dergue regime in the early 1990s. And until recently, the minority ethnic group had remained the preeminent force in the country.
However, even if the two countries are able to address trade disagreements and quell Eritrea's fears of a takeover, Afwerki's contentious history with Ethiopia's Tigray elites remains a pain point.
Afwerki made it clear that he was willing to conduct a peace agreement only after the arrival of current Ethiopian Prime Minister Abiy Ahmed, who has begun dismantling the TPLF's two-decade reign in Addis Ababa. But despite this tentative warming to Ethiopia's new leadership, there are signs that the conflict between the Tigray region of Ethiopia and Eritrea is far from over. Since Ahmed, who hails from the Oromo region, took power, the TPLF elites have retreated to the Tigray capital of Mekele where they remain firmly in control, stirring trouble right underneath Eritrea's border.
Afwerki reportedly still believes that the Tigrayans attempted to assassinate him in the early 1990s when an Ethiopian plane he was on nearly crashed — and a recent incident has only exacerbated the president's unease with his country's immediate Ethiopian neighbors.
In December 2018, Eritrea's energy minister, Brig. Gen. Sebhat Ephrem, narrowly survived an attack by unknown armed assailants at his home in Asmara. Shortly thereafter, Eritrean authorities unilaterally closed the border crossing with Ethiopia near the city of Zalambessa in the Tigray region. Neither country has issued an official statement explaining the circumstances of the attack, but rumors have circulated that the TPLF was actively plotting to instigate a coup or protests against Afwerki's government. And while there has been no evidence to support these claims, the border in Tigray remains closed, and a new border crossing in a different region has since been opened.
Should animosity between Eritrea’s leadership and the Tigray region along much of its border persist or worsen, there's a chance it could sour relations between the countries once again. That said, there are signs that the two sides are invested in maintaining improved relations, incentivized by the economic and security benefits of the new deal. But for the rapprochement to survive, they must address answers to outstanding questions in the economic and security realms in order to deepen the peace and prevent a setback as in 1998.