Mereja.Forum

Pocketful of Nakfa: Informal Trade Flourishes in Post-War Void on Tigray’s Borders

By Yared Nigussie

https://thereportermagazines.com/5070/p ... s-borders/

February 6, 2026



Trading in foreign currency in Ethiopia is prohibited except for institutions and businesses explicitly licensed by the National Bank of Ethiopia (NBE). Hotels are among the few exceptions. Yet along the scarred northern frontiers of Tigray, the Eritrean Nakfa has quietly taken root in daily economic life.

In border towns like Zalambessa and Rama, and places like Irob Woreda, Eritrea’s currency holds significant sway, and the rules written in Addis Ababa fade into abstraction. What matters instead is access: access to cash, to goods, to survival.

Residents say the Nakfa now circulates openly in informal markets, exchanged for Birr and even U.S. dollars, despite legal prohibitions and the continued presence of security forces on both sides of the border.

Residents in Irob told The Reporter Magazine that one Nakfa is exchanged for between 9.50 and 10 Birr, and described what appears to be a flourishing underground trade along the border.

Livestock, cement, teff, soft drinks, food items, building materials, and other commodities are traded across border points like Zalambessa and Dirumrum,

said one resident, referring to areas that remain partially or fully under Eritrean control three years on from the end of the northern war.

The spread of Nakfa in Tigray cannot be understood without accounting for the devastation left by the two-year war. Across the region, infrastructure was destroyed, commercial networks fractured, and financial institutions rendered inoperable or inaccessible. In border towns such as Zalambessa, banks remained closed or severely constrained long after major hostilities subsided.

The Birr, already under pressure nationwide due to inflation and tight monetary controls, became especially scarce in peripheral border zones. For many residents, accessing cash meant traveling long distances, navigating checkpoints, or relying on informal networks. In this vacuum, alternative currencies filled the gap.

Economists describe such arrangements as “survival economies,” where legality is subordinated to necessity. In post-conflict environments, when formal institutions fail to function, informal systems often emerge not as criminal enterprises but as mechanisms of endurance.

Street-Level Markets in Mekelle

The informal currency trade is not confined to border villages. In Mekelle, the regional capital, residents say Nakfa and USD are sold openly at rates higher than those offered by commercial banks.

A resident told The Reporter Magazine that youths approach people on the streets asking whether they are looking to buy Nakfa or USD.

They don’t hide it,

she said.

Parallel market currency dealers in Mekelle declined to comment, indicating only that they were willing to exchange USD for Birr in amounts of up to USD 3,000.

According to a resident of Zalambessa, one Nakfa is exchanged for at least nine Birr in both Mekelle and nearby border towns. Nakfa is also exchanged for USD in informal markets in and around Zalambessa, Rama, and Adigrat.

Right now, 19 Nakfa is exchanged for one USD,

said a trader familiar with the market, noting that prices fluctuate depending on how cheaply traders originally acquired the currency.

They sell at the highest possible rate,

he told The Reporter Magazine.

The Mechanics of the Trade

For those involved, currency exchange is inseparable from contraband trade. Traders explain that the Nakfa they obtain is often used to purchase gold and other goods from Eritrea.

One resident who earns a living by transporting cement, construction materials, fruit juice, and other commodities says there are times when he carries as much 300,000 Nakfa to the small town of Meraf, near Senafe in southern Eritrea.

Eritrean diaspora contact us from overseas and ask us to deliver 10,000 Nakfa to their families in Senafe,

he told The Reporter Magazine.

We receive Nakfa and USD from Adigrat and facilitate the transfer.

Such transactions bypass formal financial institutions entirely. Alongside currency, mobile phones, television sets, and other electronics are also smuggled across the border.

The market is volatile,

the trader said.

People trade in whatever brings the highest profit.

A 50-kilogram bag of cement, for example, can yield around 200 Nakfa (roughly 2,000 Birr) in markets near Senafe, offering a tidy profit. There are, however, other factors to consider.

Goods are transported through rugged terrain on the backs of mules, donkeys, or even people in the dead of night.

The journey to Meraf takes around four hours and is usually undertaken at night, between midnight and 5 a.m. Once back in Ethiopia, traders exchange Nakfa for Birr in Adigrat,

said a trader in Zalambessa.

He notes that a handful of informal currency exchangers operate in Adigrat.

Arbitrary Enforcement and Survival

Despite the presence of both Tigray and Eritrean security forces along the border, illegal trade continues. Traders describe arbitrary enforcement—on some occasions they are told they can trade freely; on others, they are fined or have goods confiscated.

According to one Zalambessa resident, Eritrean security forces guarding the border frequently seize commodities for their own benefit, sometimes as often as twice a week.

The conditions are extremely challenging,

he said.

But we do this trade for the sake of survival.

He blamed the expansion of contraband trade to the economic collapse that followed the war.

Businesses have slumped, jobs are scarce, and the economy has sharply declined,

he said.

That is what pushed us into this.

Still, regulators at the NBE say they have no formal knowledge of Nakfa circulating inside the country.

Nakfa is neither the Kenyan Shilling nor the Djiboutian franc, and it is not a legal currency for foreign-exchange transactions in Ethiopia,

said Yenehasab Tadesse, director of forex monitoring and reserve management at the central bank.

She added that while cross-border transactions do occur, they are not accounted for under official commercial activities.

Sources familiar with the border economy emphasize that trading in Nakfa is not new.

The use of Nakfa in border transactions has existed since the currency was introduced in 1997,

they said.

The practice, they added, resembles the circulation of the Kenyan shilling in Moyale, the border town between Ethiopia and Kenya, where communities on both sides use whichever currency is most practical for daily transactions.

Academic studies support this view. Research on borderlands in the Horn of Africa indicated that currency circulation tends to follow trade routes rather than national decrees. During periods of conflict, both the Birr and the Nakfa continued to circulate in informal markets despite strict state controls.

Nakfa and the Roots of Ethio-Eritrean War

Economist Trace C. Lasley, in his study

We Saw Not Clearly Understood: The Economic Background of the Ethiopian-Eritrean War,

argues that Eritrea’s post-independence economic stance toward Ethiopia was shaped by its belief in a special status.

Eritrea sought to operate as an autonomous nation while maintaining unrestricted access to its primary historical trading partner—Ethiopia.

The issuance of the Nakfa, and Ethiopia’s unfavorable response, brought these tensions to a climax. The currency was introduced at a time when economic relations between the two countries were already strained. Eritrea issued Nakfa without a clear bilateral agreement on exchange mechanisms, while Ethiopia responded by imposing significant barriers.

These restrictions proved difficult for Eritrea to bear, particularly because the Nakfa was introduced when Eritrea remained heavily dependent on Ethiopia’s market. Ethiopia’s response further deepened Eritrean frustration, contributing to grievances that later escalated into war.

For Gebru Asrat, former mayor of Mekelle and author of Lualawinetina Democracy BeEthiopia (translated as Sovereignty and Democracy in Ethiopia), today’s Nakfa trade is not merely an economic anomaly—it is part of a long-standing pattern.

Eritrea’s economic policy of exploiting the resources of neighboring countries has not changed,

Gebru said.

Even before the 1998–2000 war, he argues, Eritrean actors were deeply involved in contraband trade—not only along the border but also in Addis Ababa.

Gebru said,

Eritrea’s former Embassy in Addis Ababa played a role in illicit currency transactions, acquiring USD by paying inflated Birr rates sourced from the local market.

He documents these practices in his book, arguing that Nakfa functioned as a tool of economic penetration.

Although illicit trade slowed after the end of the war in 2000, it never fully stopped,

Gebru said.

The trade surged again following the reopening of the border without effective customs controls.

There were no mechanisms in place, and even the TPLF failed to curb these activities,

he added.

As a result, Nakfa began circulating openly in Mekelle, Adigrat, and other towns, often trading against the Birr and USD. A few months ago, Gebru noted, one Nakfa was exchanged for nine birr.

Today it has risen to around 14 birr, driven by the expansion of contraband activities,

he told The Reporter Magazine.

High-value commodities such as berbere, coffee, fuel, hides, skins, and electronics dominate the trade. Gold, in particular, plays a central role. Gebru also mentioned that gold sourced from Sudan, the Gambella region, and Eritrea is transported through Tigray, adulterated, and eventually exported to the United Arab Emirates (UAE).

These activities are devastating for Ethiopia’s economy,

he said.

Goods imported using USD are smuggled out, foreign currency is lost, and nothing is taxed.

Security, Sovereignty, and Territory

Beyond economics, Gebru warns of serious security implications.

He alleges that military officers from both the TPLF and the Eritrean government, in collaboration with business actors, are orchestrating illicit trade networks.

The free movement of thieves and criminals across the border has created lawlessness,

he said.

A sovereign state has an obligation to protect its territory, its people, and its economy.

Gebru also notes that Eritrean forces control parts of Ethiopian territory in Tigray, including areas in Irob. Residents in some locations, he said, have reportedly been pressured to obtain Eritrean identification documents.

He identified Gulo Mekeda along the Zalambessa corridor as a major hub for illegal trade, with Rama serving as another key route where vehicles transport contraband late at night. Adiabo in the Shiraro area is also involved, he said, along with routes across Dallol in Afar, though the harsh geography there makes trade more difficult.

Informal Economies and the Failure of Peace

For Gebru, the persistence of Nakfa trading reflects deeper political failures.

He argues that key provisions of the Pretoria Peace Accord remain unimplemented, internally displaced people have not returned home, the Disarmament, Demobilization and Reintegration (DDR) process is incomplete, reconstruction has stalled, and governance remains unresolved.

Road construction has not begun, water projects have not been launched, factories have not been rebuilt,

he said.

People feel abandoned.

Research by UN-Habitat supports this perspective.

Its study

Surviving, Managing, Thriving: The Informal Economy in Post-Conflict Cities,

based on fieldwork in cities across Africa, the Middle East, and South Asia, finds that informal economies often emerge as systematic responses to governance failures.

Rather than existing on the margins, they become central to survival and, eventually, recovery.

The current situation in Tigray mirrors earlier periods in the Horn of Africa, when state authority was weakest at the margins and informal systems filled the gap. The lesson from that era—largely unheard—is that banning currency use without restoring economic functionality only drives activity further underground.

Looking ahead, Gebru argues that military approaches alone will only deepen fragmentation.

Negotiating in a civilized manner is crucial,

he said.

At the same time, he expressed skepticism about a purely peaceful resolution with Eritrea, calling first for diplomatic pressure and, if that fails,

strengthened military capacity to enforce sovereignty.

Above all, he stressed, national unity is essential. Without it, borders remain porous, currencies drift, and survival economies become permanent.

In Tigray’s war-ravaged borderlands, the Nakfa has become more than a currency. It is a signal of collapse, of adaptation, and of the high cost of unresolved peace.



Yared Nigussie

Constructive discussion today with H.E. Amb. Sahak Sargsyan, Ambassador of the Republic of Armenia to Ethiopia and Permanent Representative to the AU, on cooperation at bilateral and multilateral levels. @ERIEMBAET


________