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N E I G H B O U R S Immediate Background to the Conflict Though the agreement was implemented with lots of difficulties, it also resulted in conflict. The immediate cause of the conflict has been documented by many and widely published. The real causes of the conflict are varied since there are diverse views that exist in this respect which see them as both economic and political. According to Ruth Iyob, the roots of the conflict can be traced to the period of partnership that the EPLF and TPLF had developed since 1975 onwards and the dynamics of the contradictory roles Eritrea and Ethiopia came to play with each other: “the one Eritrea as a diasporic state, the other, Ethiopia that of regional hegemon”.11 She tries to argue that developing an identity unique to the struggle that Eritreans fought for their political, social, and economic right was not compatible with the hegemonic role played by Ethiopia and hence the cordiality of the initial years began to fade soon. In other words, inconsistency over the way both of them emerged in the 1990s was the central problem, which led to hostilities. The border problem was just an excuse to start a war. Lack of institutionalisation of relations through legal means whilst depending on mutual trust and understanding could not work and did not work. Whatever may be the reasons, difficulties primarily stemmed from the economic and financial point of view. Signs of incompatibility started soon due to certain provisions in the agreements relating to trade and investment.12 Actually, one cannot blame Eritrea or Ethiopia for lack of implementation of the agreements since it is obvious that such problems arose due to different approaches to political and economic development that the two countries were pursuing. Overcoming such a situation would require strong political will, which was probably lacking. Economic reasons that contributed towards the conflict can be traced to the issue of Eritrean currency –– the Nakfa –– in November 1997 that was similar to that of the Ethiopian Birr. The separate paths to economic development that each country followed and Eritrea’s subsequent affirmation of economic sovereignty by way of introducing its own currency added fuel to fire. The protocol agreement that was signed on September 1993 called for harmonisation of macro-economic policies of the two countries. However, both sides failed to implement the agreement. Not only did they fail to harmonise their exchange rate policies and interest rate strictures but also, as stated above, could not reconcile their economic policies. This was bound to take place considering the fact that Eritrea did not have its own currency and had to depend upon the Ethiopian Birr. Even though Eritrea introduced its own currency in view of the non-viability of the Ethiopian Birr, the new currency brought about problems in trade between both the countries. Eritrean exports to the Ethiopian market amounted for 60 percent of the total trade. The initial agreement decreed that trade between both countries would be made on the basis of Letter of Credit denominated in U.S. dollars.13 Eritrea, however, demanded payment of the port services in terms of U.S. dollars. This ensured that Ethiopia was dependent upon the port facility of Djibouti.


A brief look into the statistical figures of Eritrea’s trade with Ethiopia would give us an understanding of the extent of economic interaction during the said period. The following table illustrates that.

Eritrea's trade with Ethiopia (in Ethiopian Birr) Year


1993 63,968,197 1994 90,796,808 1995 146,820,200 112,880,000 1996 261,781,354 1997 274,600,000



123,579,747 181,491,011 259,700,000

59,611,550 90,694,203

273,400,000 218,200,000

11,618,646 -56,400,000

Source: Eritrean Studies Review, vol.3, no.2, 1999, p.101

From the above table, one can see an increase in Eritrean exports between 1993 and 1996 and a decline in 1997. As far as imports are concerned, it has been steadily increasing during the same period. Alemseged Tesfai points out that the favorable balance of trade for Eritrea that is quite apparent between 1993 and 1996 is deceptive if one considers the mode of payment that was used. The products that Eritrea exported, according to Alemseged, have been mainly of industrial nature, in which chemicals and materials were paid for in hard currency reserves but sold to Ethiopia in Birr. He adds that with the use of free port facility and transport services, and non-payment of Eritrean indirect tax and intermediate payments by Ethiopian traders, Ethiopia clearly stood to gain.14 It would be quite apparent that after the start of the conflict, trade has declined even more to the detriment of Eritrea. In political terms, besides the issue of nationality, the central point of conflict has been over border demarcation. The protocol agreement of 1993 provided for free movement of people and establishment of residence in both Eritrea and Ethiopia. It was agreed that visas would not be required for nationals of both countries to enter or leave Eritrea and Ethiopia. Problems erupted soon on this account due to divergent citizenship policies. The issue of Ethiopians of Eritrean origin opened another area of differences and dispute.15 Differences also surfaced over the possession of a village called Badme. Like other towns of the frontier, Badme has the same ethnic composition. The crisis developed due to Ethiopian control of towns

February-April 2007


February 2007-April 2007