Somalia’s economic development has suffered in the absence of political stability since the 1990s. Several years of civil war led to major material destruction, leading to the cessation of state structures. Somalia as state formation went a long way in dissolution, and two regions – Puntland and Somaliland – erupted, declaring themselves as independent states, with their own finances. Even after the civil war, in the 2000s, there has been a lack of stability and security, partly as a result of the activities of the al-Shabaab terror group. The security situation is somewhat better in Puntland and Somaliland than in other parts of Somalia.
The absence of public security and state institutions has made reconstruction difficult after the war. Somalia is a relatively resource-poor country, which largely depends on agriculture – and above all livestock farming. This makes the country vulnerable to climate change, with both drought and floods.
According to countryaah, There are deposits of several minerals, but most of them will not be economically profitable to recover. However, possible deposits of oil in the Indian Ocean could make Somalia a significant petroleum exporter. The fish stocks are also not large and contribute little to the economy.
Somalia had some industry before the war, which is to a small extent rebuilt. A consequence of war and poverty is that a large number of Somalis have fled the country. This has tapped Somalia for competence, but at the same time has led to the transfer of currency from exile Somalis to the homeland. These make a significant contribution to Somalia’s national economy, and enable, among other things, the necessary import of goods, and not least capital for investment in business activities. Another significant source of income is assistance (development assistance).
Several years of war and the absence of government institutions have meant that economic statistics have been, and are still partly, deficient. Somalia’s economy is largely dominated by the so-called informal sector, which makes the overview of economic development even more difficult.
It is estimated that over half of Somalia’s population lives in poverty. Unemployment, especially among young people, is high: About two out of three young people are not formally employed. A priority in the national development plan is to foster economic growth and create more jobs; the latter also with regard to the many Somali refugees who are in neighboring Kenya and who will eventually return home.
During the colonial period Somalia was part of a French, British and Italian part. The last two were united in the new Republic of Somalia in 1960. Part of the colonial government invested heavily in modern infrastructure, as well as in agriculture, including plantation operations, and in industry.
In the 1970s, the military junta that seized power in 1969, led by Siad Barre, introduced a socialist- oriented policy. It included, among other things, nationalization of banks and other financial activities as well as industrial enterprises and plantations. Agricultural cooperatives and state-owned industrial companies and trading companies were established. This economic policy contributed little to the development of the Somali community, and practically all remaining business in the modern sector ceased to exist as a result of the war in the early 1990s. Among other things, what was left of industrial enterprises ceased and machinery was dismantled and sold as scrap metal.
Agriculture and fishing
Somalia is located in one of Africa’s most drought-prone areas, and the country has experienced several severe droughts and famines. Drought is particularly severe when the country’s most important trade route is agriculture, and a large portion of the population lives a semi-nomadic life with animal husbandry, others of self-storage farming.
It is estimated that about three-fifths of Somalia’s economy is agricultural-based, and up to three-quarters of the population has livestock – with camels, goats, sheep and cattle – as their main source of income. Live animals, as well as meat and hides, have been, and continue to be, Somalia’s most important export products. Exports are mainly to the countries of the Arabian Peninsula. After the war, this business has picked up, and animals (and meat) from Somalia have partly out-competed exports from Australia to these markets.
Agriculture consists partly of production of goods for own use, or of a national market, and partly of specialized production for export. Bananas are the main export product of agriculture. This market-oriented production, which also includes sugar cane, rice, cotton as well as fruits and vegetables, takes place substantially on plantations along the Juba and Shebelle rivers, and is based on extensive irrigation. Small farmers along the rivers use artificial irrigation on a smaller scale to produce a variety of food crops for the local market.
Approximately 45 percent of the total area is considered to be grazing land, and is sought by the nomadic tribes according to season and precipitation conditions. Most of the livestock production takes place in natural households where productivity has traditionally been low. Foreign interests, especially from the United Arab Emirates, have acquired agricultural land in Somalia.
Fish does not constitute a significant part of the Somali diet, and the country’s fisheries, which have a modest scope, have been substantially export-oriented. Many years of overfishing have limited the catch and economic value of this sector. Tuna and mackerel are the most important fish species, and the catch is to some extent canned in Somalia. Shellfish are also caught for export. Traditionally, a lot of shark has been fished. Somali fishermen operate small boats. Licenses have been sold overseas, and vessels from both Asia and Europe operate offshore in the north (Puntland).
Mining and energy
Somalia has limited mineral resources, but may have very large oil deposits. Mineral deposits have little commercial value, with the exception of plaster deposits at Berbera, which is among the largest in the world. Occurrences of lime, gold, silver, nickel, copper, zinc, lead, manganese and iron ore have been detected. Somalia also has large deposits of uranium. Some salt is extracted from the sea.
Somalia has deposits of oil and natural gas, and for several years the resources have been mapped, both in the north of the country (Puntland and Somaliland), and in the marine areas in the south, down to the Kenya border. Based on new seismic surveys, it has been estimated that there may be deposits of up to 90-100 billion barrels of oil. If this proves correct and recovery is possible, Somalia could become one of the world’s largest oil producers. To date, the political and economic situation has hindered mapping and recovery. The Somali state has established its own oil company, and in 2019 passed a petroleum law that allows for exploration and recovery. Puntland has previously passed its own petroleum law. Several blocks in the Indian Ocean, with estimated deposits of 30 billion barrels, has been posted. Some of these are completely south of Somalia’s territorial waters, including an area of Somalia and Kenya disputed. This has led to a diplomatic conflict between the two countries.
Somalia was included in the Norwegian development program Oil for Development in 2018, managed by Norad. Smaller oil companies with Norwegian ownership interests or listed on the Oslo Stock Exchange have been active in exploration for oil in Somalia.
Inadequate electricity supply is a continuing challenge. Somalia has a smaller number of power plants in Mogadishu, Hargeisa and Kismaayo.
Somalia’s limited industrial sector was severely affected by the war and is to a small extent rebuilt. The sector, which was mainly, and still is, concentrated around Mogadishu and Kismaayo, consists primarily of the food industry, as well as the production of leather goods and textiles.
Somalia mainly exports food (meat and fruit), but at the same time is dependent on importing food, not least grain.
Export revenues do not cover import expenses. The balance of trade deficit is covered by foreign aid and by transfers from Somalis abroad. The war led to the collapse of the established economic structures and the development of unofficial channels, including for the transfer of money from Somalis in exile. This is done through the so-called hawala networks, and has become a significant economic activity. Three major state banks are in operation, and the stock exchange is located in Mogadishu.
Transport and Communications
Somalia’s road network is deficient and there is no railway in the country. The poorly developed transport infrastructure is an obstacle to the development of the country. In the 2000s, however, a modern telecommunications structure has been developed, with a number of private mobile and internet operators. Several small airlines have also been established.
There are larger ports in Kismaayo, Berbera (in Somaliland), Marka and Mogadishu. Mogadishu has an international airport.