By Ali S. Yusuf
The latest update on Somalia’s economy issued by the World Bank on Monday, September 9th, 2019, highlights impressive figures posted by the Horn of Africa nation with growth projected to rise in the coming years. According to the Bank, “Somalia’s economy is expected to grow by 2.9% this year, from 2.8% last year, before growth quickens to 3.2-3.5% in the medium term.” Further, the Bank said Somalia’s progress is encouraging given that tax collection by the government increased by 29% last year, as the economy recovered from drought the previous year.
The Bank’s economic outlook for Somalia looks much rosier with indications that the forecasted high growth rate in the next 3-5 years will be bolstered by the government’s new tax policies and its sustained economic reform agenda that is yielding positive results.
Over the last two years, Somalia’s robust economic growth has been hailed by international partners and the donor community as an emerging success story. In May, the IMF stated that Somalia’s economy was on the right track further underscoring the nation’s remarkable recovery. According to IMF’s recent data, Somalia’s GDP stood at $6.8 billion in 2016 and $7 billion in 2017. The IMF which resumed relations with the current Somali government for the first time in decades has been one of the leading global institutions lending credence to the Somalia narrative.
According to the IMF, Somalia’s economy is being accelerated by growth in livestock and fisheries and a resurgent private sector, notably in the services industry, which includes telecommunications, construction and money transfer. “If improvement in security continues, the entrepreneurial private sector will continue to be the most dynamic contributor to economic growth,” says an upbeat Mr. Rogerio Zandamela, the country’s IMF Mission Chief. The IMF also notes that Somalia’s resource potential makes it possible that socioeconomic conditions may show even greater improvement. According to the IMF’s country head, “The country has natural resources, including gas and petroleum, fisheries, and more. Proper management of these natural resources is vital to Somalia’s success.”
As noted by Africa Renewal, Mogadishu, the nation’s bustling capital, once a “no-go area for commercial airlines, is now receiving daily flights again. Restaurants, taxi companies, employment agencies, dry cleaners, gyms, real estate offices and fast food courts are springing up throughout the capital and in other cities in the country” According to Trade – Invest Somalia, the country is “endowed with uranium, iron ore, tin, gypsum, bauxite, copper, salt, natural gas and oil” and has in spite of the many years of conflict, “maintained an informal economy largely based on the export of livestock mainly camels and remittances of money from one of the world’s largest diasporas.”
In terms of commercial activities, Somalia’s coastline of 3,025KM, the longest in Africa, coupled with its strategic location along the Indian Ocean, the Gulf of Aden and the Red Sea makes it a viable hub for the flow of international trade across Africa, Europe, Middle East, Asia and the rest of the world.
Due to growing donor confidence in Somalia’s ongoing post-conflict reconstruction, USAID has moved to support the Growth, Enterprise, Employment and Livelihoods (GEEL), initiative, which promotes inclusive economic growth across Somalia. Through GEEL, USAID seeks to accelerate Somalia’s “growing integration into the global economy through a combination of initiatives that improve the country’s competitiveness; spur new investments; and increase market linkages and business partnerships. This program aims to boost Somali exports of quality agriculture and fish, increase dairy production, reduce reliance on imports, and increase jobs in regions recovering from years of conflict and recurrent natural disasters.”
GEEL is leveraging the growing capacities of the government at the federal, regional, and local levels that build foundations that create an enabling environment for businesses to grow. Activities are focused on sectors with high potential across all regions in Somalia. Further, GEEL is expected to improve the business environment through access to finance, promote enterprise development through business development services, increase participation of women and youth in the economy as employers, employees and entrepreneurs and improve production, employment and income in select sectors across the country.
According to USAID, assistance to improve markets and trade in Somalia not only “benefits the local economy, but also improves stability in the region. Unemployment or underemployment not only depletes families’ assets, but also sows discontent, making youth – especially young men – more vulnerable to indoctrination of violent extremist organizations. ” Creating economic opportunities therefore, is an effective means to curtail radicalization and extremism among the Somali youth.
In terms of economic sectors, the African Development Bank notes that livestock is the largest single sub-sector contributor to GDP at 30% in 2016. Agriculture provides livelihoods for more than half of the population and generates between USD 250 – 350M annually, mostly through trade with the Middle East. The Services industry in general contributes slightly more than agriculture, and are driven by wholesale and retail trading, real estate, government services, and ICT. In recent years, Foreign Direct Investment (FDI) in Somalia has increasingly focused on Greenfield investments, joint ventures, and on subsidiaries of transnational corporations.
According to the African Development Bank, Germany and the US are the main investors in Somalia. Although the US has invested more in the country, Germany has the largest subsidiary of a transnational corporation in the country – German Agro Action Office – owing to a bilateral trade agreement between Somalia and Germany for the protection and promotion of investments.
Echoing the vision of President Farmaajo during the launch of the Nordic Horn of Africa Opportunities Fund (Norfund), Prime Minister Khaire said that “Now is the time to invest in Somalia” adding that “Somalia has a lot of opportunities, and investments like this Fund are important for building peace and prosperity in Somalia.” Norfund is aimed at supporting small and medium enterprises in Somalia. The future looks brighter as Somalia’s steady economic growth ushers in, a new era of peace and prosperity.
Ali S. Yusuf
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