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07.02.13
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ECONOMY AND FINANCE PDF Print E-mail

SOMALIA’S ECONOMY AT GLANCE

Position:

Found between the latitudes 3 degrees and 13 degrees North, and longitudes 42 degrees and 52 degrees East.
Flanked on the Southwest by Kenya, Ethiopia on the West, Gulf of Aden on the North and the Indian Ocean on the East.

Relief:

The extension of Harar highlands at a height of 7,000 feet, form the northern part of the country ending on the gulf of Aden abruptly with practically no coastal plain in the North-West regions;

The Ogaden Plateau which begins in Ethiopia on the West, stretches eastwards into South-Central Somalia with a number of escarpments running from Southwest to Northeast ranging from the West one after the other to a final escarpment at a few hundred feet high overlooking the coastal plain between Mogadishu and Kismayo along the Indian Ocean;

The country’s Indian Ocean coastal plain is broadest on the Southwest where it is watered by the rivers Juba and the seasonal Webi Shabelli, all originating from the Ethiopian highlands on the West of the country; the coastal plain narrows down North of Mogadishu, then opens up again to the plain Mudugh before narrowing down again almost to no coastal plain in North-East regions.

Climate, Vegetation and Soil:

The Somali Republic is about 246,000 square miles with hot, semi-arid or outright desert all over the country;

Some of the highest areas in the North receive a little over 10 inches of rainfall annually, and a limited area along the Southeast around Mogadishu receives more than 15 inches seasonally;

Most of the area comprises sparse grazing grass and scrub otherwise desert prevails, with much of surface rock characterized by aridity, enhanced by the permeability of limestone and sands.

Population, Languages and religion:

 

The population of the country is estimated to be 7.8 million as of 2008 with a density of about 32 persons per square mile.

It is further estimated that 66 percent of the population live in rural communities or a nomadic lifestyle while 34 percent live in the urban areas of which the major ones are Mogadishu, Baidoa and Kismayo in the South-Central Somalia, Garowe, Bosaso, Galkacyo and Las Anod in North-East regions, and Hargeisa, Boroma, Berbera, Burao and Erigavo in North-West regions;

 

The official languages in the country are Somali and Arabic but English and Italian too are spoken widely;

Somalis are Muslims and the influence of Islam throughout the country is profound and faith plays a major role in every day life.

Economy:

 The economy of Somalia like those of the neighbouring countries of Ethiopia and Kenya is a dual economy in which traditional production and the way of life are practised along modern production, with gradual graduation from traditional economic way of life to modern economy

Traditional economy:

Traditionally, pastoralism is the mode of livelihood for about 80 percent of the population, with most of them being nomadic or semi-nomadic paying little attention to boundaries and, in the North, moving up into the Ethiopian Ogaden and Ethiopian Haud particularly in summer in search of grazing lands;

The principal pastoral animals kept by the nomads in order of significance of numbers are goats, sheep, camels and cattle; the nomads also engage in collection of gums and resins from the scrubby desert bushes to supplement their income;
Traditional agricultural production is limited to a few better-watered areas such as the valleys of the Juba and Webi Shabeli where sugarcane, bananas and cereals are grown.The Gross Domestic Production is estimated to be about 2.6 billion US dollars as of 2007 with per capita income of 333 US dollars which is lower than that of Kenya at 350 US dollars but better than that of Tanzania at 280 US dollars and that of Eritrea’s 190 US dollars and Ethiopia’s 100 US dollars;

About 43 percent of the population live on less than 1 US dollar a day, with 24 percent on less than a dollar a day found in the urban areas and 54 percent found in the rural areas, and 73 percent of the population live on less than 2 US dollars a day, with 61 percent in the urban centers and 80 percent in the rural areas;

Sectoral production

Primary production, predominantly agricultural, dominates production in Somalia:

Agricultural production accounts for about 64 percent of the Gross Domestic Product, with livestock keeping, crop production, and forestry and fishing as dominant agricultural activities;

Services production is second to agricultural production in ranking, with hotel, transport and communication services as the most prominent activities in the services production: 

Roads in their basic forms are available, connecting the ports Mogadishu, Kismayo, Berbera, and Bosaso and the inland towns of Baidoa, Garowe, Hargeisa and Burao, and with the neighbouring countries, but the trunk roads require rehabilitation. Plans are underway to undertake the rehabilitation and construction;
Air transport, both international and domestic connections are available via the airports at Mogadishu, Hargeisa, Berbera and Kismayo but again like in the case of the road, the airports runways require rehabilitation and reconstruction;  

Water transport accounts for movements of exports and imports through the main ports of Mogadishu, Berbera, Bosaso, and Kismayo and several jetty ports accommodating dhows, but again like in the cases of roads and airports, the sea ports require rehabilitation to facilitate trade with overseas markets;

Telecommunication is available, provided by the private sector, following the destruction of public assets in the provision of telecommunication system during the civil war;

Electricity provision is available and plans are underway to rehabilitate the electrical system damaged or destroyed in the civil war, but the continued strife has so far hindered development of new sources of electricity;

Manufacturing is another sectoral production contributing about 5 percent of the Gross Domestic Product. The manufactures include those of pasta, canned fish, candy, detergent powder soap, tannery, beverage, bottled water and ice.

Potential for expansion of agricultural production, provision of transport services, electricity supply, hotel services, and expansion of manufacturing activities and introducing new manufacturing industries abound with return of peace in the country.

Macroeconomic management

The economy of Somalia remains resilient despite the past fifteen years of political conflict. The economy has even expanded i.e., shown growth trends in some areas albeit with inequitable distribution. The institutions for managing fiscal and monetary policies were destroyed during the civil conflict but are now undergoing reconstruction:

Fiscal policy:

On the fiscal policy management, the collection of revenue though very low, is on recovery under the ministry of Finance as constituted in the Transitional Federal Government (TFG) charter and is estimated to be about only 2.0 percent of the Gross Domestic Product, thereby being substantially below the potential of over 10 percent:

The Ministries of Finance in Puntland and Somaliland have been implementing annual budgets, and action is now in process for the TFG to have the Government budget that will include that of the South Central Somalia;

Revenue collection suffer low volume and weak capacity for collection, with trade specific taxes rather than ad valorem taxes imposed on transactions including on exports, forming more than 80 percent of annual revenue;

Most of the expenditure is on provision for security and general administration with wages, salaries, operating expenses and other general expenses making up to 78 percent of the total expenditure budget i.e, recurrent expenditure dominates the expenditure structure;

Minimal allocations of expenditure are made for provision of public goods such as roads, health services and education facilities because of the dominance of recurrent expenditure particularly on the provision of security;

The financing of the budget deficit is confined to the semi-voluntary loans from major business people and would appear to be non-inflationary but these same business people are responsible for printing the currency in the absence of the Central Bank as the authority for printing a legal tender.

The financing of the budget deficit even prior to the civil war led to accumulation of public debt, the external component of which, was estimated at 1.774 billion US dollars in 1989, and due to interest charges and arrears is estimated to be around 4.764 billion US dollars with close to 70 percent of the external debt owed to bilateral and commercial creditors, and about 65 percent of the debt owed to multilateral creditors, the World Bank, the International Monetary Fund and the African Development Bank;

Somali economy operates on the principals of free trade regime with the US dollar as the main international currency and indeed the economy has increasingly become dollarized since the time of civil war in 1991, with the Somali shilling exchanging for the US dollar at a rate of 23,000 Somali shillings per dollar. The country runs annual current account deficit equal to about 9 percent of the Gross Domestic Product the financing of which, has been wholly from the remittances by the country’s diaspora. The country’s international trade is dominantly with the Middle East but also substantial trade is carried out with the neighbouring countries of the Eastern Africa.

The main imports of the country are basically food imports including sugar, wheat, wheat flour, rice, cooking oil, pasta, dates and biscuits. Non-food imports include cloth, car spares, cigarettes, soap, fuel, cement, and other construction materials. The imports of goods at around 460 million US dollars annually, have recovered and even surpassed the level at which the imports of goods were at the beginning of the civil war in 1991;

The main exports of the country are predominantly livestock, which include goats, sheep, cattle, camels and hides and skins. Other exports include charcoal and fish, which are now dominating following the fall and almost disappearance of banana exports. The exports of goods at about 270 million US dollars annually have also recovered beyond the levels of exports of goods in 1991 but still remain far below imports of goods thereby leading to a trade account deficit balance of about 190 million US dollars annually;

The remittances from Somalia diaspora is estimated to be more than 1,000 million US dollars annually which thereby far surpasses the deficit in the trade balance and indeed has been clearly able to sustain the import level and the current account deficit of 9 percent of the Gross Domestic Product over the past fifteen years of the civil war. It is estimated that, more than 750,000 Somalis currently work in Europe, Australia, New Zealand and the Gulf, making the remittances back to Somalia out of their earnings abroad.

The main ports for international trade are Mogadishu on the Indian Ocean, Bos aso, and Berbera on the Gulf of Aden. There are many other small seaports on both the Indian Ocean and the Gulf including Kismayo on the Indian Ocean that accommodate small fishing vessels.

With the return of peace to Somalia, and the subsequent reconstruction and development of public institutions, the Somali economy is bound not only to recover from pre-civil war levels, but also to accelerate in economic growth and development given the country’s unexploited natural resources which include deposits of uranium, tin, copper, zinc, gold, coal, zircon, and kynite. Moreover, the financial sector, currently dominated by the vibrant remittance companies as the only players in the national payments system, stand to expand considerably once the conventional commercial banking activities resume.

 

 

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