By Osman H. Yusuf
An economy that’s steadily growing is a welcome news for any country and its people provided that benefits are shared more widely in an equitable, sustainable and inclusive manner by all groups of society. Otherwise, conflict, rising polarization and a widening gap between the haves and the have-nots will result. In Somalia, the economy has been slowly emerging from decades of stagnation and based on data released by International financial institutions, particularly, the International Monetary Fund (IMF) it grew 2.9% of GDP in 2019 (5858bn) and is expected to grow 2.5% in 2020 (5217bn) down from earlier forecast of 3.2% due to the impact of the coronavirus. They also forecast that the economy will grow 2.9% of GDP in 2021(5369bn).
An economy achieves growth if it registers an increase in national output as measured by GDP (Gross Domestic Product) as above rates of growth reflect. However, it’s real GDP per capita or per person (US$348 at 2020 estimate for Somalia) that indicates the average income in the country as a measure of the country’s standard of living, taking population growth into account but does not capture the dimensions of the quality of life. Somalia’s GDP per capita is among the lowest in the world. Nevertheless, it must be underlined that obtaining reliable statistics on economic activities in the country is a daunting task and financial institutions sometimes revise their estimates as new information is made available to them.
Economies are largely driven by non-inflationary public and private spending and innovation, causing economic growth which can be expected to benefit everybody through what they call a ‘trickle down’ path for which the entrepreneur takes credit, however controversial this assertion may be. Sources of spending on economic activities comprise incomes, revenues, bank credit or external borrowing but Somalia’s economy is not there yet and to regain its viability and competitiveness there is a need to ensure a conducive environment to sufficiently tap those sources, domestic and foreign for its recovery which seems to be constrained by disruptive factors, lack of confidence and slow pace of the necessary economic reforms which must be expedited. However, domestic sources of Incomes are currently at very low levels and banks are not adequately funded or provided with the necessary means to meet the demand from businesses, consumers and investors to help the economy grow and develop and create more job opportunities for the unemployed and, particularly, to take advantage of the large pool of the underemployed. Therefore, effective and timely economic policies should be put in place or vigorously pursued by the government so as to steer the economy in the right direction and create and/or improve the conditions for sustainable growth and development.
Economic growth makes people’s lives more manageable, lessens poverty and scarcity and affords a better life for the people and the more the economy expands the more beneficial it will be for the average person as his or her income grows but if people feel that growth has little positive or no impact on their daily lives, they no longer believe what the experts have stated about the economy. What really matters for most people in the country is, however, whether economic growth allows them to feed themselves or in other words to put food on the table and meet their other essential expenses and, if they don’t see that happening, then they will ask: ‘what’s this growth about and where is it felt’? Who benefits from it? or whether it exists at all?
Yes, economic growth exists in figures as GDP shows and the distribution of output usually takes place through unfettered markets and prices and only those who have the means to purchase them will benefit, a fundamental characteristics of human self-interest. It follows that where unemployment is widespread and business sales and investment activities are slow and economic resources are underutilized, growth will benefit most those who own assets and wealth and their associates, resulting in inequality of income and poverty and creating different standards of living for different groups of the population thus, causing popular dissatisfaction, eventually leading to an upsurge of social problems in the country.
The economy is currently stuck in an unprecedented situation of limited growth and development due to the slow pace of the recovery and reforms and consequently the brunt of the burden falls disproportionally on the unemployed, the poor and the disabled. To lessen the hardship, in some developed economies, governments establish welfare programs for the unfortunate groups of the population through budgetary allocation but this benevolent action is hard to be carried out in Somalia because limited growth means, among other things, reduced revenue for the government and, consequently, reduced delivery of public services.
Historically, the productive sector and the trade sector of Somalia have propelled the economy to a steady growth and have been the two main pillars on whose output and income most people depended and whose benefits were widely spread and shared besides representing a sure source of government revenue. However, since the start of the civil war decades ago, the productive sector has almost stagnated during those many years of the conflict whereas services set up or reactivated by risk-taking entrepreneurs have in the meantime become a major contributor to economic growth and employment and have displayed resiliency during the recovery period, assuming a crucial role in providing goods and services under difficult and sometimes dangerous circumstances.
It should be underlined that the service sector did fare relatively well as it accounts for most of the growth rates the economy has so far registered unlike the productive sector which continues to be affected by disruption, shocks and insecurity especially in high risky rural areas. Moreover, the country is certainly in dire need for a rapid and successful completion of its military offensive not only with available external intervention but also to make more effective use of logistical help on the part of the local population in an effort to achieve a comprehensive peaceful environment and security in all its parts of the country – urban and rural – so that people will seize the opportunity once again and resume their socio-economic activities to push the economy forward.
However, to break the vicious circle of an underperforming economy, more investments in human capital and technology should be undertaken to increase the productive capacity of the economy. Considering facts on the ground, Somalia’s economy faces formidable obstacles due to prevailing recurrent hostile factors: natural (drought, floods, locust), man-made (insecurity, political instability, lack of effective economic policy) plus now the negative impact of the pandemic. The economy doesn’t display the characteristics of being inclusive enough in terms of opportunity and participation by all stakeholders and as such it’s not in a position to exploit its potential. However, as world economies are interdependent, international cooperation has become a beneficial source of assistance to develop the economy and help implement the country’s multi-year plan for development but it is misleading to consider such collaboration as a panacea for solving all problems affecting the country at this stage of adversity and uncertainties. Failure to achieve the goals set for the economy to grow is problematic and causes frustration to all stakeholders and there should be no room for complacency with current slow economic progress.
In the final analysis, the effort of rebuilding the national economy is a collective responsibility and to rise to the challenge each member of the society has to redouble his or her contribution in any capacity to help the economy move forward, grow and develop so that its benefits are shared by the people as widely as possible, leaving nobody behind.
Osman H. Yusuf
Email: [email protected]
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