Economy of Somalia

Economy of Somalia
The Port of Bosaso.
Currency	Somali shilling (SOS)
Trade organisations	AL, AU, CEN-SAD, IGAD
Statistics
GDP	$5.896 billion (2010)
GDP growth	2.6% (2010)
GDP per capita	$600 (2010)
GDP by sector	agriculture (60.2%), industry (7.4%), services (32.5%) (2009)
Labour force	3.447 million (2007)
Labour force by occupation	agriculture (71%), industry and services (29%) (1975)
Main industries	sugar refining, textiles, livestock, money transfer, telecommunications
External
Exports	$515.8 million (2010)
Export goods	livestock, bananas, hides, fish, charcoal, scrap metal
Main export partners	United Arab Emirates 50.8%  Yemen 19.0%  Oman 12.8% (2012 est.)[1]
Imports	$1.263 billion (2010)
Import goods	manufactured products, petroleum products, foodstuffs, construction materials
Main import partners	Djibouti 27.4%  India 12.0%  Kenya 7.2%  Pakistan 6.5%  China 6.1%  Egypt 5.0%  Oman 4.6%  United Arab Emirates 4.5%  Yemen 4.4% (2012 est.)[2]
Gross external debt	$2.942 billion (2010)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

According to the CIA and the Central Bank of Somalia, despite experiencing civil unrest, Somalia has maintained a healthy informal economy, based mainly on livestock, remittance/money transfer companies and telecommunications.^[3][4] Due to a dearth of formal government statistics and the recent civil war, it is difficult to gauge the size or growth of the economy. For 1994, the CIA estimated the GDP at $3.3 billion.^[5] In 2001, it was estimated to be $4.1 billion.^[6] By 2009, the CIA estimated that the GDP had grown to $5.731 billion, with a projected real growth rate of 2.6%.^[3] According to a 2007 British Chambers of Commerce report, the private sector also grew, particularly in the service sector. Unlike the pre-civil war period when most services and the industrial sector were government-run, there has been substantial, albeit unmeasured, private investment in commercial activities; this has been largely financed by the Somali diaspora, and includes trade and marketing, money transfer services, transportation, communications, fishery equipment, airlines, telecommunications, education, health, construction and hotels.^[7] Libertarian economist Peter T. Leeson attributes this increased economic activity to the Somali customary law (referred to as Xeer), which he suggests provides a stable environment to conduct business in.^[8]

Agriculture and natural resources

Cans of Las Qoray brand tuna fish made in Las Khorey.

Graphical depiction of Somalia's product exports in 28 color-coded categories.

The Central Bank of Somalia indicates that the country's GDP per capita is $333, which is lower than that of Kenya at $350, but better than that of Tanzania at $280 as well as Eritrea at $190 and Ethiopia at $100. About 43% of the population live on less than 1 US dollar a day, with about 24% of those found in urban areas and 54% living in rural areas.^[4] As with neighboring countries, Somalia's economy consists of both traditional and modern production, with a gradual shift in favor of modern industrial techniques taking root. According to the Central Bank of Somalia, about 80% of the population are nomadic or semi-nomadic pastoralists, who keep goats, sheep, camels and cattle. The nomads also gather resins and gums to supplement their income.^[4]

Agriculture is the most important economic sector. It accounts for about 65% of the GDP and employs 65% of the workforce.^[7] Livestock contributes about 40% to GDP and more than 50% of export earnings.^[3] Other principal exports include fish, charcoal and bananas; sugar, sorghum and corn are products for the domestic market.^[9] According to the Central Bank of Somalia, imports of goods total about $460 million per year, and have recovered and even surpassed aggregate imports prior to the start of the civil war in 1991. Exports, which total about $270 million annually, have also surpassed pre-war aggregate export levels but still lead to a trade account deficit of about $190 million US dollars per year. However, this trade deficit is far exceeded by remittances sent by Somalis in the diaspora, which have helped sustain the import level.^[4]

With the advantage of being located near the Arabian Peninsula, Somali traders have increasingly begun to challenge Australia's traditional dominance over the Persian Gulf Arab livestock and meat market, offering quality animals at very low prices. In response, Persian Gulf Arab states have started to make strategic investments in the country, with Saudi Arabia building livestock export infrastructure and the United Arab Emirates purchasing large farmlands.^[10] Somalia is also a major world supplier of frankincense and myrrh.^[11] Additionally, fishing fleets from Europe and Asia have reached commercial fishing agreements in the northern Puntland region.^[8]

Manufacturing

The new Coca-Cola bottling plant in Mogadishu, a sign of growing business confidence.

The modest industrial sector, based on the processing of agricultural products, accounts for 10% of Somalia's GDP.^[3]

Prior to the outbreak of the civil war in 1991, the roughly 53 state-owned small, medium and large manufacturing firms were foundering, with the ensuing conflict destroying many of the remaining industries. However, primarily as a result of substantial local investment by the Somali diaspora, many of these small-scale plants have re-opened and newer ones have been created. The latter include fish-canning and meat-processing plants in the north, as well as about 25 factories in the Mogadishu area, which manufacture pasta, mineral water, confections, plastic bags, fabric, hides and skins, detergent and soap, aluminum, foam mattresses and pillows, fishing boats, carry out packaging, and stone processing.^[12]

According to the UNDP, investments in light manufacturing have expanded in Bosaso, Hargeisa and Mogadishu, in particular, indicating growing business confidence in the economy.^[8] To this end, in 2004, an $8.3 million Coca-Cola bottling plant opened in Mogadishu, with investors hailing from various constituencies in Somalia.^[13] The robust private sector has also attracted foreign investment from the likes of General Motors and Dole Fruit.^[8]

Airline industry

Air Somalia plane in Sharjah, United Arab Emirates. Somalia today has a thriving private airline industry.

Prior to the civil war, Somalia had only one national airline, Somali Airlines, that serviced the entire country. Due to the entrepreneurial spirit of the Somali people and a lack of strict regulatory frameworks, by 1997, up to 14 private airline firms operating 62 aircraft were offering commercial flights to international locations.^[8][12] With competitively priced flight tickets, these companies have helped buttress Somalia's bustling trade networks.^[12]

Prominent Somali-owned private airlines include Air Somalia, Jubba Airways and Daallo Airlines, which serve several domestic locations including Bosaso and Hargeisa, as well as international destinations such as Dubai and Jeddah.^[12]

Hospitality

Somalia's hospitality sector has seen an unprecedented level of growth in the past few years. Much construction is taking place in Mogadishu and other major urban centers, encouraging the formation of new restaurants and hotels.^[8] Private-security militias are hired to ensure safety and the normal conduct of business.^[3]

Telecommunications and media

The Hormuud Telecom building in Mogadishu.

Somalia now offers some of the most technologically advanced and competitively priced telecommunications and internet services in the world.^[14] After the start of the civil war, various new telecommunications companies began to spring up and compete to provide missing infrastructure. Funded by Somali entrepreneurs and backed by expertise from China, Korea and Europe, these nascent telecommunications firms offer affordable mobile phone and internet services that are not available in many other parts of the continent. Customers can conduct money transfers and other banking activities via mobile phones, as well as easily gain wireless internet access.^[15]

After forming partnerships with multinational corporations such as Sprint, ITT and Telenor, these firms now offer the cheapest and clearest phone calls in Africa.^[8] Installation time for a landline is just three days, while in Kenya to the south, waiting lists are many years long.^[16] These Somali telecommunication companies also provide services to every city, town and hamlet in Somalia. There are presently around 25 mainlines per 1,000 persons, and the local availability of telephone lines (tele-density) is higher than in neighboring countries; three times greater than in adjacent Ethiopia.^[12] Prominent Somali telecommunications companies include Golis Telecom Group, Hormuud Telecom, Somafone, Nationlink, Netco, Telcom and Somali Telecom Group. Hormuud Telecom alone grosses about $40 million a year. To dampen competitive pressures, three of these companies signed an interconnectivity deal in 2005 that allows them to set prices and expand their networks.^[15]

Investment in the telecom industry is one of the clearest signs that Somalia's economy has continued to grow despite the ongoing civil strife in parts of the southern half of the country.^[15]

As of 2005, there were also 20 privately owned Somali newspapers, 12 radio and television stations, and numerous internet sites offering information to the public. Several local satellite-based television services transmit international news stations, such as CNN.^[8] In addition, one of Somalia's upstart media firms recently established a partnership with the BBC.^[8]

Finance

The Central Bank of Somalia is the official monetary authority of Somalia.^[4] In terms of financial management, it is in the process of assuming the task of both formulating and implementing monetary policy.^[17]

Owing to a lack of confidence in the local currency, the US dollar is widely accepted as a medium of exchange alongside the Somali shilling. Dollarization notwithstanding, the large issuance of the Somali shilling has increasingly fueled price hikes, especially for low value transactions. This inflationary environment, however, is expected to come to an end as soon as the Central Bank assumes full control of monetary policy and replaces the presently circulating currency introduced by the private sector.^[17]

A Dahabshiil franchise outlet in Columbus, Ohio.

Although Somalia has had no central monetary authority for upwards of 15 years between the outbreak of the civil war in 1991 and the subsequent re-establishment of the Central Bank of Somalia in 2009, the nation's payment system is actually fairly advanced due primarily to the widespread existence of private money transfer operators (MTO) that have acted as informal banking networks.^[18]

These remittance firms (hawalas) have become a large industry in Somalia, with an estimated $1.6 billion USD annually remitted to the region by Somalis in the diaspora via money transfer companies.^[3] The latter include Dahabshiil, Qaran Express, Mustaqbal, Amal Express, Kaah Express, Hodan Global, Olympic, Amana Express, Iftin Express and Tawakal Express. Most are credentialed members of the Somali Money Transfer Association (SOMTA), an umbrella organization that regulates the community's money transfer sector, or its predecessor, the Somali Financial Services Association (SFSA). A unique feature of the Somali funds transfer companies is that they all charge the same low commission of 5% for sending amounts of up to approximately $1000, a fee range that encompasses the vast majority of household Somali remittances. For amounts greater than $1000, these companies charge commission fees of between 3%-4%, significantly lower than Western Union's 7.1% fee and MoneyGram's 7.2% fee for sending the same amount to Ethiopia. The bulk of remittances are sent by Somalis based abroad to relatives in Somalia, a practice which has had a stimulating effect on the country's economy.^[19][20]

Dahabshiil is the largest of the Somali money transfer operators (MTO), having captured most of the market vacated by Al-Barakaat. The firm has its headquarters in London and employs more than 2000 people across 144 countries, with 130 branches in the United Kingdom alone, a further 130 branches in Somalia, and 400 branches globally, including one in Dubai. The company provides a broad range of financial services to international organisations, as well as to both large and small businesses and private individuals.^[14][19][20] After Dahabshiil, Qaran Express is the largest Somali-owned funds transfer company. The firm has its headquarters in both London and Dubai, with 175 agents worldwide, 66 agents in Somalia and 64 in London, and charges nothing for remitting charity funds. Mustaqbal is the third most prominent Somali MTO, with 8 agents in Somalia and 49 in the UK. As with Dahabshiil and Qaran Express, it also has a notable presence internationally.^[19]

As the reconstituted Central Bank of Somalia fully assumes its monetary policy responsibilities, some of the existing money transfer companies are expected in the near future to seek licenses so as to develop into full-fledged commercial banks. This will serve to expand the national payments system to include formal cheques, which in turn is expected to reinforce the efficacy of the use of monetary policy in domestic macroeconomic management.^[18]

Energy

The World Bank reports that electricity is now in large part supplied by local businesses, using generators purchased abroad. By dividing Somalia's cities into specific quarters, the private sector has found a manageable method of providing cities with electricity. A customer is given a menu of choices for electricity tailored to his or her needs, such as evenings only, daytime only, 24 hour-supply or charge per lightbulb.^[7]

Oil blocks in Puntland.

Somalia has untapped reserves of numerous natural resources, including uranium, iron ore, tin, gypsum, bauxite, copper, salt and natural gas.^[3] Due to its proximity to the oil-rich Gulf Arab states such as Saudi Arabia and Yemen, the nation is also believed to contain substantial unexploited reserves of oil. A survey of Northeast Africa by the World Bank and U.N. ranked Somalia second only to Sudan as the top prospective producer.^[21] American, Australian and Chinese oil companies, in particular, are excited about the prospect of finding petroleum and other natural resources in the country. An oil group listed in Sydney, Range Resources, anticipates that the Puntland province in the north has the potential to produce 5 billion barrels (790×10^⁶ m³) to 10 billion barrels (1.6×10^⁹ m³) of oil.^[22] As a result of these developments, the Somali Petroleum Company was created by the federal government.

According to surveys, uranium is also found in large quantities in the Buurhakaba region. A Brazilian company in the 1980s had invested $300 million for a uranium mine in central Somalia, but no long-term mining took place.^[23]

Additionally, the Puntland region under the Farole administration has since sought to refine the province's existing oil deal with Range Resources. The Australian oil firm, for its part, indicated that it looked forward to establishing a mutually beneficial and profitable working relationship with the region's new government.^[24][25]

In mid-2010, Somalia's business community also pledged to invest $1 billion in the national gas and electricity industries over the following five years. Abdullahi Hussein, the director of the just-formed Trans-National Industrial Electricity and Gas Company, predicted that the investment strategy would create 100,000 jobs, with the net effect of stimulating the local economy and discouraging unemployed youngsters from turning to vice. The new firm was established through the merger of five Somali companies from the trade, finance, security and telecommunications sectors. The first phase of the project is scheduled to start within six months of the establishment of the company, and will train youth to supply electricity to economic areas and communities. The second phase, which is slated to begin in mid-to-late 2011, will see the construction of factories in specially designated economic zones for the fishing, agriculture, livestock and mining industries.^[26][27]

In 2012, the Farole administration gave the green light to the first official oil exploration project in Puntland and Somalia at large.^[28][29] Led by the Canadian oil company Africa Oil and its partner Range Resources, initial drilling in the Shabeel-1 well on Puntland's Dharoor Block in March of the year successfully yielded oil.^[28]

According to the Central Bank of Somalia, as the nation embarks on the path of reconstruction, the economy is expected to not only match its pre-civil war levels, but also to accelerate in growth and development due to the Somalia's untapped natural resources.^[4]

See also

• Oil exploration in Puntland

References

Bibliography

• Mauri, Arnaldo, Banking Development in Somalia, SSRN 958442 (1971).

External links

• Economy of Somalia on the Open Directory Project
• Somalia latest trade data on ITC Trade Map
• CIA World Factbook: Somalia

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