Economy of Somalia

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Somalia

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Somalia has a market economy. It lacks natural resources (or untapped resources such as Oil) and faces major development challenges, and recent economic reverses have left its people increasingly dependent on remittances from abroad. Its economy is pastoral and agricultural, with livestock — principally camels, cattle, sheep, and goats — representing the main form of wealth. Livestock exports in recent years have been severely reduced by periodic bans, ostensibly for concerns of animal health, by Arabian Peninsula states. Drought has also impaired agricultural and livestock production. Because rainfall is scanty and irregular, farming generally is limited to certain coastal districts, areas near Hargeisa, and the Jubba and Shebelle River valleys. The modern sector of the agricultural economy consists mainly of banana plantations located in the south, which have used modern irrigation systems and up-to-date farm machinery.

One optomistic view states “The outside world’s picture of Somalia has been distorted by the natural tendency of the foreign media to focus on bad news” and that “[p]eace reigns in most of the country” and “as a result regional and local governments have been able to resume working in many areas.” Former Somalia ambassador to Washington, Omar Mohalim Mohamoud says “Somalis consider themselves born free. To them, the State equals registration, regulation and restriction” and attributes this prejudice against a new central government to the nomadic culture and the bad experiences of the Barre regime. “Somalia can only deal with its massive material and social problems once the pieces of the jigsaw have been fitted back together.”^[1]

Economic progress in Somalia is decidedly mixed. As of January 2007, Somalia is still a fragile state with hundreds of thousands of refugees due to massive floods and the latest fighting of the civil war. GDP per capita remained one of the lowest in the world at $600, meaning many of its people live in extreme poverty.

There are signs of growth in Somalia:

Despite the seeming anarchy, Somalia’s service sector has managed to survive and grow… Mogadishu’s main market offers a variety of goods from food to the newest electronic gadgets. Hotels continue to operate, and militias provide security.

– CIA Factbook^[2]

Contents 1 Economy 1.1 Agriculture and natural resources 1.2 Light industry 1.3 Transportation 1.4 Telecommunications 1.5 Financial sector 1.6 Construction 1.7 Energy and utilities 2 Corruption 3 Statistics 4 External links 5 References

[edit] Economy

GDP per capita of Somalia grew 37% in the 1960s, dropped to just 6% in the 1970s and recovered to 37% growth in the 1980s. Since the collapse of the state, Somalia has transformed from what Mohamed Siad Barre referred to as "scientific socialism" to a free market economy.

Due to the lack of government oversight or statistics, and the recent war, it is difficult to calculate the size or growth of the economy. For 1994, the CIA estimated GDP at $3.3 billion^[3] In 2001, it was estimated to be $4.1 billion.^[4] In 2005, the CIA estimated GDP to be $4.809 billion.^[5] Real growth in 2005 was projected at 2.4%.

The absence of central government authority, as well as profiteering from counterfeiting, rapidly debased Somalia's currency in 2001–2002. By the spring of 2002, the free market rates, such as used in the Bakaara Market, pegged the value of the Somali shilling (SoSh) emitted by the TNG to over 30,000 shillings to the U.S. dollar. In 2003, that rate had leveled off to 20,000 shillings to the dollar.^[6] In April 2006, the value had recovered even further to 13,400, which is still below the rate of 10,100 SoSh to the dollar in January 2000.^[7]

This rate is far worse than the official currency exchange rate, which in January 2000, stood at 2,555.42 SoSh to the dollar^[8], and in January 2007, stood at 1,288.26 to the dollar.^[9]

The main problem affecting economic growth is the lack of stability. For businesses to operate, it is necessary to provide some level of security. Internationally recognized governments are widely perceived as being more reliable in this than the traditional tribal leadership that currently holds sway in Somalia.

[edit] Agriculture and natural resources

Agriculture is the most important sector, with livestock accounting for about 40% of GDP and about 65% of export earnings. Nomads and semi-nomads, who are dependent upon livestock for their livelihood, make up a large portion of the population. After livestock, bananas are the principal export; sugar, sorghum, maize, and fish are products for the domestic market.

A small fishing industry has begun in the north where tuna, shark, and other warm-water fish are caught, although fishing production is seriously affected by poaching, piracy, and the lack of ability to grant concessions because of the absence of a generally recognized government. Aromatic woods — frankincense and myrrh — from a small and diminishing forest area also contribute to the country's exports.

Minerals, including uranium, are found throughout the country, but they have not been exploited commercially.

[edit] Light industry

With the help of foreign aid, small industries such as textiles, handicrafts, meat processing, and printing are being established. Investors have returned in recent years; for example, a Coca-Cola bottling plant opened in Mogadishu in 2004.^[10]

[edit] Transportation

Infrastructure such as roads are as numerous as those in neighbouring countries but of much lower quality. A World Bank report states the private sector has found it too hard to build roads due to high transaction costs and the fact that those who pay road fees are not the only ones using the road (see free rider problem), presenting a problem with recuperation of investment.

There are no railways in Somalia; internal transportation is by truck and bus. The national road system nominally comprises 22,100 kilometers (13,702 mi.) of roads that include about 2,600 kilometers (1,612 mi.) of all-weather roads, although most roads have received little maintenance for years and have seriously deteriorated.

Air transportation is provided by small air charter firms and craft used by drug smugglers. A number of airlines operate from Hargeisa. Some private airlines, including Air Somalia and Daallo Airlines, serve several domestic locations as well as Djibouti and the United Arab Emirates. The UN and other NGOs operate air service for their missions.

In 1989, before the collapse of the government, the national airline had only one airplane. Now there are approximately fifteen airlines, over sixty aircraft, six international destinations, and more domestic routes. According to a World Bank report, the "private airline business in Somalia is now thriving with more than five carriers and price wars between the companies."^{[citation needed]}

The European Community and the World Bank jointly financed construction of a deepwater port at Mogadishu. The Soviet Union improved Somalia's deepwater port at Berbera in 1969. Facilities at Berbera were further improved by a U.S. military construction program completed in 1985, but they have become dilapidated. During the 1990s the United States renovated a deepwater port at Kismayo that serves the fertile Juba River basin and is vital to Somalia's banana export industry. Smaller ports are located at Merca, Brava, and Bossaso. Absence of security and lack of maintenance and improvement are major issues at most Somali ports.

On January 17, 2007, new port and airport directors were appointed by the TFG.^[11]

[edit] Telecommunications

Radiotelephone service is available to both to regional and international locations. The public telecommunications system has been destroyed or dismantled, however it has been rebuilt privately and is superior to what existed before. Somalia is linked to the outside world via ship-to-shore communications (INMARSAT) as well as links to overseas satellite operators by private telecommunications operators in major towns. Wireless/mobile communications has also become an economic force in Somalia.

Radio broadcasting stations operate at Mogadishu, Hargeisa, and Galkayo, with programs in Somali and some other languages. There are two television broadcast stations in Mogadishu and one in Hargeisa.

Sanctions by the US in 2001 in the wake of the 9/11 attacks due to suspicions of terrorist funding set back Somali Internet development.^[12] Internet usage still continues to climb due to Internet cafés. From 200 users in all of Somalia in 1999^[13], the number of users has grown to an estimated 90,000, or 11 persons per 1,000 in 2005, according to the ITU. The shared use of computers can be inferred by the lower estimate of 50,000 PCs in the country, for a ratio of about two users on average for every computer.^[14]

[edit] Financial sector

Remittance services has become a large industry in Somalia. Successful people from the world-wide diaspora who fled because of the war contribute to the economy around $1 billion annually.^[15] In the absence of a formal banking sector, money exchange services have sprouted throughout the country, handling between $500 million and $1 billion in remittances annually. Because of the war, nobody really knows the size of the economy or how much it is growing.

[edit] Construction

Construction is sporadic, and at times heavily subsidized from foreign aid agencies. Projects, such as the UN WFP program to to repair the air strip in Bardheere, are resuscitating infrastructure, homes and commercial sites that have laid in ruins for years or decades.^[16]

Some construction projects were begun under the Islamic Courts Union (ICU) in 2006, including re-opening the Mogadishu port and airport.^[17]

[edit] Energy and utilities

Electricity is furnished by entrepreneurs, who have purchased generators and divided cities into manageable sectors.

Petroleum exploration efforts, at one time under way, have ceased due to insecurity and instability. There are no proven oil reserves, but there are prospects to explore for oil in Puntland. Due to political instability and the protests of the Transitional Federal Government foreign investors are warned to not make deals until stability is restored.^[18] Illegal production in the south of charcoal (as a biomass fuel) for export has led to widespread deforestation.

The private sector also supplies water. A report by WHO/UNICEF indicated that in 2004 only 29% of the population had access to safe drinking water.^[19]

[edit] Corruption

The owner of Daallo Airlines says, "Sometimes it's difficult without a government and sometimes it's a plus", but "Corruption is not a problem, because there is no government."^[20]

However, based on reports and statistics gathered by Transparency International, Somalia was ranked 144 for the perceived most-corrupt economies in the world. Only 9 nations ranked lower in the study. No data was available from Somalia for the 2006 study.^[21]

[edit] Statistics

Given the lack of central government, banking and commercial controls, these statistics should be viewed as best estimates:

GDP: purchasing power parity - $4.809 billion (2005 est.)

GDP - real growth rate: 2.4% (2005 est.)

GDP - per capita: purchasing power parity - $600 (2005 est.)

GDP - composition by sector:
agriculture: 65%
industry: 10%
services: 25% (2000 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): note - businesses print their own money, so inflation rates cannot be sensibly determined (2003 est.)

Labor force: 3.7 million (very few are skilled laborers)(1993 est.)

Labor force - by occupation: agriculture (mostly pastoral nomadism) 71%, industry and services 29%

Unemployment rate: NA%

Budget:
revenues: $NA
expenditures: $NA, including capital expenditures of $NA

Industries: a few light industries, including sugar refining, textiles, petroleum refining (mostly shut down), wireless communication

Industrial production growth rate: NA%

Electricity - production: 235.6 GWh (2003)

Electricity - production by source:
fossil fuel: 100%
hydro: 0%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 219.1 GWh (2003)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: bananas, sorghum, maize, rice, sugar cane, mangoes, coconuts, sesame seeds, beans; cattle, sheep, goats; fish

Exports: $79 million f.o.b. (2002 est.)

Exports - commodities: livestock, bananas, hides, fish, charcoal, scrap metal

Exports - partners: UAE 37.2%, Yemen 22.3%, Oman 10.1%, China 6%, Kuwait 4.4%, Nigeria 4% (2003)

Imports: $344 million f.o.b. (2002 est.)

Imports - commodities: manufactures, petroleum products, foodstuffs, construction materials, khat

Imports - partners: Djibouti 33.9%, Kenya 15.5%, Brazil 6.6%, UAE 5.1%, Thailand 4.2% (2003)

Debt - external: $2.6 billion (2000 est.)

Economic aid - recipient: $60 million (1999 est.)

Currency: Somali shilling (SOS)

Exchange rates: Somali shillings (So. Sh.) per US$1 - 2,620 (January 1999), 7,500 (November 1997 est.), 7,000 (January 1996 est.), 5,000 (1 January 1995), 2,616 (1 July 1993), 4,200 (December 1992)
note: the Republic of Somaliland, a self-declared independent country not recognized by any foreign government, issues its own currency, the Somaliland shilling (So. Sh.)

Fiscal year: NA

[edit] External links

• CIA World Factbook: Somalia
• Somalia Reuters Alertnet country profile

[edit] References