Somalia - Economy

Economy

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. 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. In 2001, it was estimated to be $4.1 billion. By 2009, the CIA estimated that the GDP had grown to $5.731 billion, with a projected real growth rate of 2.6%. 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. 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.

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. However, the CIA puts Somalia's GDP per capita at $600. 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.

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.

Agriculture is the most important economic sector. It accounts for about 65% of the GDP and employs 65% of the workforce. Livestock contributes about 40% to GDP and more than 50% of export earnings. Other principal exports include fish, charcoal and bananas; sugar, sorghum and corn are products for the domestic market. According to the Central Bank of Somalia, imports of goods total about $460 million per year, surpassing 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. Somalia has a trade deficit of about $190 million per year, but this is exceeded by remittances sent by Somalis in the diaspora, estimated to be about $1 billion.

With the advantage of being located near the Arabian Peninsula, Somali traders have increasingly begun to challenge Australia's traditional dominance over the Gulf Arab livestock and meat market, offering quality animals at very low prices. In response, 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. Somalia is also a major world supplier of frankincense and myrrh.

The modest industrial sector, based on the processing of agricultural products, accounts for 10% of Somalia's GDP. Up to 14 private airline firms operating 62 aircraft now also offer commercial flights to international locations, including Daallo Airlines. With competitively priced flight tickets, these companies have helped buttress Somalia's bustling trade networks. In 2008, the Puntland government signed a multi-million dollar deal with Dubai's Lootah Group, a regional industrial group operating in the Middle East and Africa. According to the agreement, the first phase of the investment is worth Dhs 170 m and will see a set of new companies established to operate, manage and build Bosaso's free trade zone and sea and airport facilities. The Bosaso Airport Company is slated to develop the airport complex to meet international standards, including a new 3.4 km runway, main and auxiliary buildings, taxi and apron areas, and security perimeters.

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 northern regions, 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. In 2004, an $8.3 million Coca-Cola bottling plant also opened in the city, with investors hailing from various constituencies in Somalia. Foreign investment also included multinationals like General Motors and Dole Fruit.

Airspace over Somalia is controlled by the UN, with the $275 per plane going to the UN rather than the Somali government. The TFG is trying to obtain control of the airspace, but it is not known if they will be able to maintain it effectively.