Overview

 

One of the world's poorest and least developed countries, Somalia has few resources and much of its infrastructure has been destroyed by civil war. The economy is heavily dependent on agriculture, which is subject to the vagaries of periodic droughts. Livestock alone accounts for about 40% of GDP and about 65% of export earnings. The small manufacturing sector is based on the processing of agricultural products. Trade in bananas, weapons and qat (a narcotic stimulant) are vital to the economy.

 

During the course of the last few years a pattern of stability emerged as peace spread slowly throughout the country, but by late 2001Somalia was considered to be on the edge of unprecedented, total economic collapse. Weakened first by the ban on the export of Somali livestock, the fragile economy was brought to the brink of total collapse following the closure by the American authorities of the Somali owned Al-Barakaat banking and telecommunications systems in October. The closure followed charges against Somalia aiding and abetting terrorism.

 

Somaliland, which traditionally garners its income from livestock trade with the Arabian peninsula, has also had to absorb huge economic losses due to a livestock ban in place since 2000. Since it is not an internationally recognised state, it also has limited access to international funding sources. The numerous population flows of refugees and IDPs during the 1980s and 1990s from Somalia, Ethiopia and Djibouti placed severe strain on Somaliland’s stretched economic resources. In October 2003, Somaliland in fact passed a Decree to deport displaced persons, as it was causing tension over resources in certain areas. By 2004, the northern parts of Somaliland were in their fourth consecutive year of drought. Many pastoralists had lost up to 80% of their livestock, again initiating mass rural-urban migrations.

Note: Assessments of performance are almost impossible because of the absence of formal economic data and the economic upheavals caused by the civil war. All economic data given should be treated as rough estimates only.

Labour market and unemployment

 

Agriculture - 71 % (mostly pastoral nomadism), industry and services 29%.

Agriculture

 

Livestock is the basis of the economy, providing the main source of food and foreign exchange. Somalia has more camels than any other country – some 5.7m in 1998. From September 2000 the UAE, Saudi Arabia and other Gulf states imposed a ban on livestock imports from Somalia owing to concerns over Rift Valley fever. Although lifted in May 2001 by the UAE, and by Yemen in November 2001, this is expected to result in a shortfall in foreign exchange and worsen the economic outlook. The Somaliland government estimated that the ban cost it 20% of its annual revenue.

Bananas, which are grown in the interriverine areas, are the country’s second-largest export.Other products are sorghum, corn, sugarcane, mangoes, sesame, seeds, beans; cattle, sheep, goats; and fish. Frankincense and myrrh are traditional Somali forestry products.

Government finance and fiscal policy

 

There is little formal economic policy beyond the collection of duties and tax. In Somaliland, duties levied at the port of Berbera generate an estimated 85% of government revenue. Clan factions also collect tax - a key source being from duties on the import of the mild narcotic qat.

Foreign Aid and Donors

 

As there is no government in Somalia, and the administration in Somaliland has yet to be internationally recognised, relations with creditors have been frozen throughout the 1990s. No debts have been serviced since 1990, external debts totalling US$2.61bn in 1999.

Regional and International economic grouping/alliances:

• Inter-governmental Authority on Development (IGAD)

• The Lomé Convention

• African Union

• Common Market for Eastern and Southern Africa (Comesa)

•  EU-ACP Convention

• League of Arab States