Ethiopia nationalized Eritrea's 42 largest factories and systematically dismantled the Eritrean industrial sector during the protracted civil war. By the end of the civil war, however, all production had stopped. Plants were generally inefficient, and most of these industries required significant investment to achieve productivity. Manufactured items in 2002 included beverages, processed foods, tobacco, leather, textiles, metal products, chemicals, printing, non-metallic minerals, construction materials, salt, paper, and matches. The government sought privatization of these industries, and issued incentives such as exemptions from income tax, preferential treatment in allocation of foreign exchange for imports, and provisions for remittance of foreign exchange abroad. In 2002, there were approximately 2,000 manufacturing companies operating in the country.
The oil industry has potential, as major oil deposits are believed to lie under the Red Sea. In 2001, the United States firm CMS Energy entered into an exploration agreement with Eritrea for exploration in the Dismin Block in northeastern Eritrea. Due to high operating costs, the country's sole oil refinery, at Assab, was closed in 1997. It had crude refining capacity of 18,000 barrels per day.
The construction industry is growing, as projects range from the construction and expansion of power plants; road, airport, and dam construction; upgrading sea ports; and the construction of schools and hospitals.