The Eritrean economy has yet to stabilize after years of armed struggle against the Ethiopian government. The population is still largely dependent on food aid. Agriculture and raising of livestock occupy over 80% of the population, taking place throughout the country, in both the highlands and lowlands. Long term prospects for agricultural development appear to be strongest in the western lowlands. A small industrial sector shows signs of growth potential, but infrastructure and skilled labor is lacking.
The natural resource profile of Eritrea is not yet known with certainty. Known mineral resources include copper, zinc, lead, gold, silver, marble, granite, barite, feldspar, kaolin, talc asbestos, salt, gypsum and potash. Petroleum resources are also suspected, located offshore.
The military regime that ruled Ethiopia from 1974 to 1991 nationalized all housing and all large- and medium-sized businesses and services, including banks, in Eritrea. The post-independence government has denationalized housing, and is committed to denationalization of business and services. As of 2002, there were approximately 2,000 manufacturing companies operating in Eritrea: all but 45 were private enterprises, and of the state-owned businesses, 35 had been sold to private interests and 10 were awaiting privatization.
Eritrea's most significant economic assets may be its unspoiled coastline, which offers some of the best fishing and underwater diving in the world, and its two ports on the Red Sea.
The two-year old war with Ethiopia that began in 1998 and ended in 2000 halted foreign investment. Fears of a resurgence of hostilities, combined with poverty, illiteracy, and a weak transportation and communications infrastructure also hamper the investment climate. The war greatly slowed economic growth (the economy contracted by 9% in 2000), largely due to a disruption in trade relations between Eritrea and Ethiopia. Eritrea's expenditures on defense and relief amounted to 23.5% of GDP in 1999.