Somalia - Economy
Somalia’s economy grew by an estimated 2.3 percent in 2017, reflecting the severe impact of the 2016/7 drought on agriculture. The drought caused enormous losses in livestock and crop production and led to food insecurity that affected more than 6 million people in 17 of 18 regions of Somalia. With the help of the international community, Somalia narrowly averted widespread famine in 2017. But economic losses are estimated at $1.7 billion.
Modest economic growth in 2017 was supported by private consumption on the demand side and by the services sector on the supply side. Large remittance inflows facilitated private consumption. On the supply side, anecdotal evidence suggests that the main sources of growth were construction, telecommunications, and money transfer services. The servicessector—particularly telecommunication and mobile money—has been a vibrant and vital enabler of economic growth in Somalia.
Growth in recent years has not been sufficient to reduce poverty. Between 2013 and 2017, real GDP grew by an average of 2.5 percent while population grew by 2.9 percent a year. The result was a contraction of per capita GDP of 0.3 percent a year. This performance is significantly below the average for fragile countries, Sub-Saharan Africa, and lowincome countries. Growth remains too low to provide enough jobs for the expanding labor force, particularly young people. In 2016 half of all Somalia lived in poverty, and almost a third lived in extreme poverty.
In Somalia, by early 2017 more than half the population – 6.2 million people – needed humanitarian and protection assistance, including 2.9 million who are at risk of famine and require immediate assistance to save or sustain their lives, close to 1 million children under the age of 5 would be acutely malnourished this year. In the last two months alone, nearly 160,000 people have been displaced due to severe drought conditions, adding to the already 1.1 million people who live in appalling conditions around the country.
Large parts of southern and central Somalia remain under the control or influence of Al-Shabaab and the security situation is volatile. In 2016, some 165 violent incidents – an 18 per cent increase compared to 2015 – directly impacted humanitarian work and resulted in 14 deaths of aid workers. Al-Shabaab, Government Forces and other militia also continued to block major supply routes to towns in 29 of the 42 districts in southern and central Somalia. This restricted access to markets, basic commodities and services, and severely disrupted livelihoods. Blockades and double taxation bar farmers from transporting their grains.
It is critical that AMISOM and Somali forces secure vital road access to enable both lifesaving aid and longer term recovery. A lot of hope was placed in the new Government. The current indicators mirror the tragic picture of 2011, when Somalia last suffered a famine. It is important to add that when the famine was called at that time 260,000 had already died. However, by 2017 humanitarian partners now had a larger footprint, mature cash programming, better data through assessments, better controls on resources and vetting of partners, as well as stronger partnership with government authorities.
With a new government in place, Somalia is emerging from the effects of a long civil war, extended drought and a catastrophic famine. Although the Federal Government of Somalia in Mogadishu is still struggling to contain the Al-Shabaab insurgency, Somalia’s economy is growing. There are few reliable statistics but a glance around the country’s cities reveals an extraordinary amount of new construction, rapidly increasing vehicle traffic and an explosion of cellular phone use, among other tangible indicators of economic expansion. Businesses agree that – at least in the cities – demand for goods and services is growing rapidly.
Remittances are a lifeline for millions of Somalis; an estimated 40 per cent of the population depends on them for basic needs such as food and medicine. Somalia lacks natural resources and faces major development challenges. 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. Saudi Arabia lifted its ban on Somali livestock in 2009.
Drought has impaired agricultural and livestock production. Because rainfall is scanty and irregular, farming generally is limited to certain coastal districts, areas near Hargeisa, and the Juba and Shabelle River valleys. The agricultural sector of the economy consists mainly of banana plantations located in the south, which use modern irrigation systems and up-to-date farm machinery.
Beginning in spring 2011, Somalia and the greater Horn of Africa experienced what some have called the worst drought in 60 years. Massive crop failure and a drastic rise in food prices, coupled with the security situation in al-Shabaab controlled areas of south and central Somalia, led the UN to declare famine in six areas in September 2011. This famine forced thousands of Somalis into already overstretched refugee camps in Ethiopia, Kenya, and Djibouti, while others have fled to internally displaced persons (IDP) camps in Mogadishu. Al-Shabaab continues to deny international aid to the most affected communities.
Relatively good rains in October-December 2014 and reprioritized humanitarian assistance averted a most acute humanitarian crisis, according to post-harvest findings by the Food Security and Analysis Unit, managed by FAO. However, about 730,000 Somalis, of whom 76 per cent are displaced people living in urban areas, are still unable to meet their basic daily food needs. An additional 2.3 million people are at risk of sliding into the same situation where assistance is not provided. Meanwhile, nearly 203,000 acutely malnourished children require emergency nutrition supplements, access to clean water, sanitation infrastructure and better hygiene services.
A small fishing industry exists in the north where tuna, shark, and other warm-water fish are caught, although fishing production is seriously affected by poaching. According to the FAO, the only “underfished” fish stocks anywhere in the world are off Somalia’s Indian Ocean coast. The income and employment potential is tremendous and Somalis could expect an order of magnitude increase in the size of their fish catch.
Aromatic woods--frankincense and myrrh--from a small and diminishing forest also contribute to the country’s exports. Minerals, including uranium and likely deposits of petroleum and natural gas, are found throughout the country, but have not been exploited commercially. Petroleum exploration efforts have ceased due to insecurity and instability. Illegal production in the south of charcoal for export has led to widespread deforestation. With the help of foreign aid, small industries such as textiles, handicrafts, meat processing, and printing are being established.
Across the sectors, lack of human and financial capital remains the biggest challenge. Continued funding is needed to sustain productive sectors and scale up youth employment activities in areas where needs are the greatest. Concessionary project financing for large-scale productive infrastructure is likely to be limited until Somalia qualifies for heavily indebted poor country status. Security problems and related access limitations will continue to hamper implementation. A key priority is providing equitable economic opportunities to Somali women, who mostly occupy low-paying jobs in the informal sector.
More than 1.1 million Somalis, the majority of whom are women and children, remained displaced. During the first two months of 2015 over 40,000 people were evicted, mainly in Mogadishu, and moved further into the outskirts of the city, where access to basic services is limited. Against this dire humanitarian backdrop, there was a risk that remittances, estimated at $1.3 billion annually, could be shut down as a number of banks in many countries have started to close down the accounts of money transfer organizations that enable the Somali diaspora to send money home to family and friends for food, water, health and education.
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