Benefits of Making Business in Eritrea | Buy & Sell Business

1. BENEFITS OF MAKING BUSINESS IN ERITREA WWW.MERGERSCORP.COM

2. At MergersCorp M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction. It is our goal to make the process of either buying a new business or selling your current business as smooth and efficient as possible. We know how important confidentiality is to our sellers and we treat it with the utmost importance. WWW.MERGERSCORP.COM

3. BENEFITS OF MAKING BUSINESS IN ERITREA WWW.MERGERSCORP.COM

4. Country Overview Eritrea, country of the Horn of Africa, located on the Red Sea. Eritrea’s coastal location has long been important in its history and culture—a fact reflected in its name, which is an Italianized version of Mare Erythraeum, Latin for ―Red Sea.‖ Eritrea’s coastline, forming the northeastern edge of the country, extends for roughly 600 miles (1,000 km) from Cape Kasar, in the north, to the Strait of Mandeb, separating the Red Sea from the Gulf of Aden in the south. The country is bounded to the southeast by Djibouti, to the south by Ethiopia, and to the west by Sudan. Eritrea’s land is highly variegated. Running on a north-south axis through the middle of the country are the central highlands, a narrow strip of country some 6,500 feet (2,000 metres) above sea level that represents the northern reaches of the Ethiopian Plateau. The highest point is Mount Soira, at 9,885 feet (3,013 metres).

5. Executive Summary Eritrea’s capital and largest city is Asmara (Asmera). The current population of Eritrea is 3,525,554 as of Wednesday, January 29, 2020, based on Worldometer elaboration of the latest United Nations data. Eritrea population is equivalent to 0.05% of the total world population. 63.3 % of the population is urban (2,246,038 people in 2020). The Eritrean highlands are drained by four major rivers and numerous streams. Two of the rivers, the Gash and the Tekezē, flow westward into Sudan. The Tekezē River (also known as the Satit) is a major tributary of the Atbara River, which eventually joins the Nile. The Gash River reaches the Atbara only during flood season. As it crosses the western lowlands, the Tekezē forms part of Eritrea’s border with Ethiopia, while the upper course of the Gash, known as the Mereb River, forms the border on the plateau. Agriculture is by far the most important sector of the country’s economy, providing a livelihood for about four-fifths of the population and accounting for a large portion of Eritrea’s exports. Small-scale cultivation and traditional pastoralism are the main forms of agricultural activity.

6. Introduction – Doing business in Eritrea Eritrea is a new and upcoming country. Therefore, opportunities for trade and business are plenty. The country is still in the process of building its infrastructure and establishing its presence in the world of international trade and commerce. Though relatively small in size, Eritrea has emerged as the gateway to the huge markets of Sudan and Ethiopia. Eritrea retained the entire coastline of Ethiopia along the Red Sea upon de jure independence from Ethiopia. The two major ports of Eritrea, namely Assaib and Massawa, are located along the world’s busiest shipping lanes. Therefore, Eritrea’s importance as a regional centre for trade and distribution can never be underestimated. There are a few easy ways to make your presence felt in Eritrea and neighbouring countries like Sudan and Ethiopia. The Eritrea limited liability company (LLC) The Eritrean LLC requires only 1 director and 1 shareholder of any nationality for incorporation process to be approved by the Commercial Registry at the Ministry of Trade and Industry. The minimum paid-up capital required at incorporation is US$1,500.

7. Conducting business in Eritrea Doing Business 2019 covers 11 areas of business regulation. Ten of these areas - starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency - are included in the ease of doing business score and ease of doing business ranking. Doing Business also measures features of labor market regulation, which is not included in these two measures. Doing Business provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level. This economy profile presents indicators for Eritrea; for 2019 Eritrea ranks 189. In 2011, Eritrea's GDP grew by 8.7 percent making it one of the fastest growing economies in the world.

8. Taxation in Eritrea The Eritrean government levies a 2% Tax on Eritreans in the diaspora. The 2% Tax is an income tax and its legal basis are two Eritrean Proclamations. Sales Tax Rate in Eritrea averaged 4.50 percent from 2014 until 2019, reaching an all time high of 5 percent in 2017 and a record low of 4 percent in 2015. However, on investigation it appears that the 1991 proclamation is intended for people living in Eritrea (not the diaspora) and the 1995 proclamation, although intended for people living in the diaspora, contains no clearly stated objective. Income from on shore services rendered to a person or body in Eritrea is subject to a Service Tax (5% or 10% depending on type of service). Income from off shore services rendered to a person or body in Eritrea is not subject to service tax. Eritrean Mining Tax Regime supports: Capital investments via low import duties (0.5%)

9. Trade Eritrea is the 167th largest export economy in the world. In 2017, Eritrea exported $274M and imported $308M, resulting in a negative trade balance of $33.9M. The top exports of Eritrea are Zinc Ore ($205M), Copper Ore ($37.2M), Precious Metal Ore($19.1M), Unpackaged Medicaments ($4.21M) and Precious Stones ($3.15M), using the 1992 revision of the HS (Harmonized System) classification. Its top imports are Wheat Flours($49.1M), Sorghum ($18.9M), Pasta ($16.5M), Soybean Oil ($15.9M) and Raw Sugar ($15.5M). The top export destinations of Eritrea are China($158M), South Korea ($76.4M), Spain ($19.8M), the Philippines ($6.97M) and Sudan ($4.31M). The top import origins are Egypt ($97M), China($42.8M), Italy ($31.5M), Sudan ($19M) and Brazil($15.4M).

10. Banking in Eritrea The Commercial Bank of Eritrea is the only banking institution in Eritrea with full retail commercial banking services. It is a government-owned bank, with 17 branches throughout the country. The Commercial Bank of Eritrea is the dominant bank in the country. It owns nearly 80% of all banking sector assets in the country and is a state-owned bank. It has branches in the larger cities and towns of every Eritrean region. Housing and Commercial Bank of Eritrea is the second biggest bank in current operation. Eritrea’s recent growth performance has been marked by significant volatility in part due to its dependence on a predominantly rain-fed agriculture sector, accounting for about one-third of the economy (and which has a significant impact on distribution services which account for around 20% of gross domestic product (GDP), and on a narrow mining sector which also accounts for 20% of the economy. Real GDP growth is estimated to have recovered to around 12% in 2018, while averaging -2.7% during 2015-18 on account of frequent droughts and a decline in mining production.

11. Our M&A Process NEGOTIATION & CLOSE POST MERGER INTEGRATION (PMI) INTEGRATION (PMI) POST MERGER TARGET APPRAISAL APPROACH DUE DILIGENCE Key Areas  Target & market analysis;  Initial assessment of synergies & value drivers;  Indicative valuation;  Go or No-Go decision;  Preparation of transaction documents (NDA – Non- disclosure Agreement/LOI- Letter of Intent);  Select Transaction team;  Appoint advisors;  Consider funding ability.  Initial approach letter;  Signing of NDA;  Prepare & share initial information requests;  Formulation of LOI (Letter of Intent) & possible negotiations;  Initial meeting and Q&A;  Circulate information on the Target to the Transaction team.  Set scope of due diligence;  Set up VDR (virtual data room);  Coordinating of due diligence, further meetings and Q&A sessions;  Consider points relevant to the Post-Merger (PMI) phase;  Revisit indicative valuation & prepare detailed valuation based on due diligence findings;  SPA negotiations with the seller;  Development of final structure (share/asset deal) and final valuation;  Approvals;  Signing of SPA & Close.  Consider the extent of integration;  Development of 100 Day PMI Plan;  Consider short & long term objectives;  Estimate requirements to capture synergies;  Determine resource needs & optimal allocation. Parties Involved  CFO;  Head of M&A;  Accountants;  Corporate finance advisors;  Consultants.  Senior management;  CEO, CFO, CTO;  Strategy director;  Head of M&A;  Head of Business Development;  Consultants.  Company general counsel;  Lawyers;  Senior management.  Company general counsel;  Lawyers;  Senior management/HR. 11 © Midaxo 2018 www.midaxo.com

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