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Education has long been recognized as a central element in development. The human capital formation is receiving increased attention from policy makers and scholars in different parts of the world particularly in developing countries. Eritrea is a newly born nation in Africa and is striving hard to develop its higher education. An attempt is made in this paper to analyze the sources of finance, the strategies and challenges for higher educational development in the country. Furthermore, the paper also delves the development of higher education in the country since independence. The paper provides some implications for the for the policy purpose to develop higher education so as to curb the use of expatriate manpower in different sectors of the economy.