The project main ambition is to empower small farmers in Eritrea through micro-financing and micro-ensurance project, associated with business technical cooperation. It main goal is to help reduce poverty in the country, achieve food security and improved nutrition and promote sustainable agriculture. Being agriculture the principal economic activity in Eritrea, and giving the low resources from domestic funding,the proposal is developed through a serie of strategies that could ally Private Sector Window to demands. Considering risks, IDA is necessary for mitigation and secure markets and investments. Target audience are MDBs, Private Sector and Public Sector.

1. ERITREA
AGRICULTURAL PROGRAM

2. ERITREA
Eritrea's economy in general, and the
agricultural sector in particular, were
seriously affected by the combination of the
prolonged war and recurrent droughts and
degraded lands. The military conflict
displaced farmers, reduced the availability
of agricultural inputs and destroyed
government support services. The GDP in
Eritrea at the end of 1999 was estimated at
US$ 677,000,000; GDP per capita was
some US$ 200-220. The sectorial shares
average 12 percent for agriculture, 27
percent for industry and the balance in the
services. Nearly all crop and livestock
production is based on smallholder
traditional agriculture characterized by
subsistence farming and low productivity,
with the farming system and land tenure
varying according to agro-ecological zones

3. Eritrea’s gross domestic product growth (GDP)
growth was estimated at around 9% in the 2011-12
period (the latest point for which data is readily
available), up from an estimated 2.2% in 2010. The
growth was mainly stimulated by the mining sector
(gold), the coming on stream of the Bisha mine in
2011 and the historically high gold price prevailing at
that time were key drivers. Growth prospects are
potentially favorable in the medium term, reflecting
the potential of additional mineral resources,
especially copper and zinc, with favorable
international base metal prices.
SOURCE: https://www.worldbank.org/en/country/eritrea/overview
ECONOMY

4. By virtue of its location in the Sahel, Eritrea
suffers periodic droughts and chronic food
shortages hampering development efforts.
Even in times of good rainfall, domestic
food production is estimated to meet
60-70% of the population’s needs. The last
household survey and Participatory
Poverty Assessment undertaken in 2003
estimated around two-thirds of the people
were living below the poverty line. The
current applicability of the estimate is
questionable since 2003 followed a
particularly bad drought year and
agricultural production has been favorable
since then. However, at the same time,
economic growth has slumped and per
capita incomes have been in decline
source: https://www.worldbank.org/en/country/eritrea/
overview
SOCIAL DEVELOPMENT

5. Malnutrition is of particular concern among
women and children. An estimated 46% of the
p o p u l a t i o n w e r e e s t i m a t e d t o b e
undernourished in 2002, and 40% of children
were found to be underweight for their age.
Around 37% of women have a low body mass
index.
SOURCE: https://www.worldbank.org/en/country/eritrea/overview
SOCIAL DEVELOPMENT

6. High budget deficits, resulting mainly from large military
expenditure, and a large social safety net, restrict the
government’s ability to maintain prudent fiscal targets.
Revenue as a percentage of GDP moves drastically over
time, for example from about 50% in 2003 to less than 19%
in 2009, partly due to decline in private sector activity and
foreign aid.
Revenue from the mining sector, if managed prudently,
creates prospects for improving the revenue-spending
ratio. International remittances have fallen possibly due to
the recent global financial crisis and a decline in
remittances.
Recurrent drought in the Horn of Africa region also poses a
food security challenge.
SOURCE: https://www.worldbank.org/en/country/eritrea/overview
DEVELOPMENT
CHALLENGES

7. The Government of Eritrea has
declared that it is investing in
three priority areas; food
security and agricultural
production, infrastructure
development, and human
resources development.
However, Eritrea’s economic
conditions remain challenging
as a result of the global
economic slowdown, a difficult
macroeconomic situation, and
limited physical and human
capital
SOURCE: https://www.worldbank.org/en/country/
eritrea/overview
DEVELOPMENT
CHALLENGES

8. Agriculture is key to a return to stability in
fragile countries where it is often the main
source of employment.
In Eritrea, almost 80% of the employment is in
agriculture.
The private sector has an imperative role to help
farmers in fragile societies to become part of
sustainable market-based systems that can help
improve yields and food security.
DEVELOPMENT
CHALLENGES
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

9. Their yield can significantly improve through more professional operations and
small investments in improved crop and animal care, better seeds and better
storage facilities.
Key constraints were identified as:
(i) low capacity of government and local companies;
(ii) macroeconomic instability;
(iii) poor infrastructure;
(iv) lack of clarity on land rights;
(v) small size of local economy;
(vi) land use competition;
(vii) access to finance and technology;
(viii) vulnerability to climate change.
DEVELOPMENT
CHALLENGES
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

10. Considering the importance of agriculture in Eritrea, and the predominant
rural population, is imperative to support agricultural practice in a
sustainable way to avoid rural-urban migration and secure nutrition.
Drought effects must be mitigated through micro-insurance;
Opportunities for farmers, and consumption smooth, could be financed
through micro-financing projects. Projects could be develop with farmers
cooperative, and associated with farmer’s service businesses projects.
STRATEGIES

11. Strengthen farmer-owned supply chains to improve access to market,
including through better transportation, storage, and crop and market
knowledge.
This would include the development of small scale lending, backed by insurance
mechanisms, for farmers to buy/rent necessary equipment and storage facilities. If
well designed, these types of small scale value chain fortification through
cooperative finance/insurance mechanisms provide productivity opportunities for
farmers in FCS. The Ghana Grains Partnership is a good example of a long-term
mechanism which has strengthened the position of farmers, suppliers and
consumers in the arid, soil-depleted regions in Northern Ghana.
STRATEGIES
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

12. Provide rainfall index insurance (micro insurance) to farmers.
This is a promising way to introduce insurance in the agricultural value chain.
Rainfall index insurance provides a payout based on measured local rainfall during
key phases of the agricultural season, and can help rural households and local
banks mitigate their exposure to a key risk, creating space for an increase in
(micro) lending.
Financial illiteracy can be overcome by interacting closely with the community
through the cooperative rather than interacting with individual households.
Lack of rainfall data can be overcome by using satellite imagery of photosynthesis
and the connection of insurance to lending can be strengthened by mandating an
insurance when taking out (micro) loans and requiring the national insurance
industry to have a minimum percentage of its total portfolio in micro insurance.
STRATEGIES
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

13. Create and replicate farmer service businesses that provide inputs on credit,
train farmers, and purchase the output from farmers and deliver/sell to high
value markets.
A public private partnership supported by donor technical assistance would help
create the local capacity and finance the supply chains that builds agricultural
markets and generate sustainable jobs.
STRATEGIES
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

14. Create transitional bridge financing for livestock owners during drought
seasons. Livestock is an important but fragile source of income.
Many small farmers end up selling their animals below market price as a result of
drought and other natural catastrophes. To retain these valuable assets of small-
holder livestock owners, the private sector, through a government guarantee, can
provide a financing mechanism to support bridge financing. Such a mechanism
would build resilience in the community and maintain livestock as a sustainable
source of income and livelihood.
STRATEGIES
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

15. Robust and transparent governance arrangements are proposed to ensure
the effective implementation of the PSW.
Five organizing principles have been developed to guide the governance
arrangements: accountability through independent decision-making by each
institution; strong oversight through clear reporting and review arrangements;
conflict of interest management through each institution vetting cross-institutional
transactions independently and arms-length arrangements; transparent risk-return
sharing to ensure that IDA is compensated for some of the risks it assumes under
the PSW; and operational efficiency through leveraging existing processes to the
extent possible without compromising other governance principles.
DEMANDS
Source: 2016 Development Finance Forum.Unlocking Opportunities in Fragile
Markets. World Bank Group.

16. To prevent fraud and corruption in the implementation of PSW-funded
projects, as is the case with existing WBG collaboration, the fiduciary
safeguard arrangements approved by the Boards of IFC and MIGA would
apply to transactions under the PSW involving IFC and/or MIGA.
These include compliance with IFC and MIGA’s integrity and procurement policies,
safeguard policies and procedures, policies on use of offshore financial centers,
etc. Existing redress and investigation mechanisms such as IFC’s and MIGA’s
Compliance Advisor, Ombudsman office and INT can be utilized as needed. The
principles listed above will help mitigate risks to IDA’s reputation
DEMANDS
Source: https://ida.worldbank.org/sites/default/files/images/ifc-miga-private-sector-
window-ida18.pdf

17. To achieve the overarching objectives of the PSW, Management proposes four
facilities:
Risk Mitigation Facility,
MIGA Guarantee Facility,
Local Currency Facility,
and a Blended Finance Facility
DEMANDS
Source: https://ida.worldbank.org/sites/default/files/images/ifc-miga-private-sector-
window-ida18.pdf

18. Demand for such support is strong as investors and commercial institutions are looking
to invest in frontier markets but need support to help mitigate risks.
Development finance can therefore play an important role in mitigating risks and
bringing risk-adjusted returns in line with investor requirements.
Private sector window under the Global Agriculture and Food Security Program
(GAFSP)
IFC’s blended finance platform including the climate facilities
MIGA’s Conflict-Affected and Fragile Economies Facility (CAFEF)
In line with IDA’s track record of innovation, the PSW would allow IDA to leverage the
IFC and MIGA platforms in a financially efficient manner, and provide an entry point into
the area of “blended finance”.
OPPORTUNITIES
Source: Blended Finance Vol 1: A Primer for Development Finance and
Philanthropic Funders”, OECD, World Economic Forum, September 2015