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Somalia - ECONOMY

Somalia - The Economy


ALREADY SERIOUSLY WEAKENED by a devastating civil war, the Somali economy was further undermined by the fall of President Mahammad Siad Barre's government in late January 1991 and the subsequent absence of political consensus. Economic statistics from the early post-Siad Barre period were not available in early 1992; however, one can gain some understanding of Somalia's economic situation during that period by looking at the country's prior economic history.

Generally, interventions in the Somali economy, whether by Italian fascists, Somali Marxists, or International Monetary Fund ( IMF) economists, have had minimal impact on economic development. Yet the shrewd Somalis have been able to survive and even prosper in their harsh desert homeland.

Pastoralism and Commerce in Historical Perspective

The Somalis raise cattle, sheep, and goats, but the camel plays the central role as an indicator of wealth and success. Camels can survive in an environment where water and grazing areas are scarce and widely scattered. They provide meat, milk, and transportation for Somali pastoralists, and serve as their principal medium of exchange. Camels are provided as compensation for homicides and are a standard component of the dowry package.

For centuries, nomads have relied on their livestock for subsistence and luxuries. They have sold cows, goats, and older camels to international traders and butchers in the coastal cities, and in the urban markets have bought tea, coffee beans, and salt. In the nineteenth century, northern Somalis were quick to take advantage of the market for goats with middlemen representing the British, who needed meat for their enclave in Aden, a coaling station for ships traveling through the Suez Canal. By the turn of the century, about 1,000 cattle and 80,000 sheep and goats were being exported annually from Berbera to Aden.

Starting in the fifteenth century, the ports of Saylac and Berbera were well integrated into the international Arab economy, with weapons, slaves, hides, skins, gums, ghee (a type of butter), ostrich feathers, and ivory being traded. On the Banaadir coast, especially in Mogadishu but also in Merca and Baraawe, a lively trade with China, India, and Arabia existed as early as the fourteenth century. Finally, starting with the Somalis who for centuries have joined the crews of oceangoing ships, the exportation of labor has long been a crucial element in Somalia's ability to sustain itself.


Somalia - The Colonial Economy


The colonial era did not spark foreign economic investment despite the competition of three major European powers in the area of present-day Somalia. Italy controlled southern Somalia; Britain northern Somalia, especially the coastal region; and France the area that became Djibouti. Italian parliamentary opposition restricted any government activity in Somalia for years after European treaties recognized Italian claims. In the early twentieth century, projects aimed at using Somalia as a settlement for Italian citizens from the crowded homeland failed miserably. Although in the early 1930s Benito Mussolini drew up ambitious plans for economic development, actual investment was modest.

There was still less investment in British Somaliland, which India had administered. During the prime mininstership of William Gladstone in the 1880s, it was decided that the Indian government should be responsible for administering the Somaliland protectorate because the Somali coast's strategic location on the Gulf of Aden was important to India. Customs taxes helped pay for India's patrol of Somalia's Red Sea Coast. The biggest investment by the British colonial government in its three-quarters of a century of rule was in putting down the rebellion of the dervishes. In 1947, long after the dervish war of the early 1900s, the entire budget for the administration of the British protectorate was only £213,139. If Italy's rhetoric concerning Somalia outpaced performance, Britain had no illusions about its protectorate in Somaliland. At best, the Somali protectorate had some strategic value to Britain's eastern trading empire in protecting the trade route to Aden and India and helping assure a steady supply of food for Aden.

The two major economic developments of the colonial era were the establishment of plantations in the interriverine area and the creation of a salaried official class. In the south, the Italians laid the basis for profitable export-oriented agriculture, primarily in bananas, through the creation of plantations and irrigation systems. In both the north and the south, a stable petty bourgeois class emerged. Somalis became civil servants, teachers, and soldiers, petty traders in coastal cities, and small-business proprietors.

The plantation system began in 1919, with the arrival in Somalia of Prince Luigi Amedeo of Savoy, duke of Abruzzi, and with the technical support of the fascist administration of Governor Cesare Maria de Vecchi de Val Cismon. The Shabeelle Valley was chosen as the site of these plantations because for most of the year the Shabeelle River had sufficient water for irrigation. The plantations produced cotton (the first Somali export crop), sugar, and bananas. Banana exports to Italy began in 1927, and gained primary importance in the colony after 1929, when the world cotton market collapsed. Somali bananas could not compete in price with those from the Canary Islands, but in 1927 and 1930 Italy passed laws imposing tariffs on all non-Somali bananas. These laws facilitated Somali agricultural development so that between 1929 and 1936 the area under banana cultivation increased seventeenfold to 3,975 hectares. By 1935 the Italian government had constituted a Royal Banana Plantation Monopoly (Regia Azienda Monopolio Banane--RAMB) to organize banana exports under state authority. Seven Italian ships were put at RAMB's disposal to encourage the Somali banana trade. After World War II, when the United Nations (UN) granted republican Italy jurisdiction over Somalia as a trust territory, RAMB was reconstituted as the Banana Plantation Monopoly (Azienda Monopolio Banane--AMB) to encourage the revival of a sector that had been nearly demolished by the war.

Plantation agriculture under Italian tutelage had short-term success, but Somali products never became internationally competitive. In 1955 a total of 235 concessions embraced more than 45,300 hectares (with only 7,400 hectares devoted to bananas), and produced 94,000 tons of bananas. Under fixed contracts, the three banana trade associations sold their output to the AMB, which exacted an indirect tax on the Italian consumer by keeping out cheaper bananas from other sources. The protected Italian market was a mixed blessing for the Somali banana sector. Whereas it made possible the initial penetration by Somali bananas of the Italian marketplace, it also eliminated incentives for Somali producers to become internationally competitive or to seek markets beyond Italy.

The investment in cotton showed fewer long-term results than the investment in bananas. Cotton showed some promise in 1929, but its price fell following the collapse in the world market. Nearly 1,400 tons in 1929 exports shrank to about 400 tons by 1937. During the trust period, there were years of modest success; in 1952, for example, about 1,000 tons of cotton were exported. There was however, no consistent growth. In 1953 exports dropped by two-thirds. Two reasons are given for cotton's failure as an export crop: an unstable world market and the lack of Somali wage labor for cotton harvesting. Because of the labor scarcity, Italian concessionaires worked out coparticipation contracts with Somali farmers; the Italians received sole purchasing rights to the crop in return for providing seed, cash advances, and technical support.

Another plantation crop, sugarcane, was more successful. The sugar economy differed from the banana and cotton economies in two respects: sugar was raised for domestic consumption, and a single firm, the Italo-Somali Agricultural Society (Societa Agricola Italo-Somala--SAIS), headquartered in Genoa, controlled the sector. Organized in 1920, the SAIS estate near Giohar had, by the time of the trust period, a little less than 2,000 hectares under cultivation. In 1950 the sugar factory's output reached 4,000 tons, enough to meet about 80 percent of domestic demand; by 1957 production had reached 11,000 tons, and Italian Somaliland no longer imported sugar.

Labor shortages beset Italian concessionaires and administrators in all plantation industries. Most Somalis refused to work on farms for wage labor. The Italians at first conscripted the Bantu people who lived in the agricultural region. Later, Italian companies paid wages to agricultural families to plant and harvest export crops, and permitted them to keep private gardens on some of the irrigated land. This strategy met with some success, and a relatively permanent work force developed. Somali plantation agriculture was of only marginal significance to the world economy, however. Banana exports reached US$6.4 million in 1957; those of cotton, US$200,000. But in 1957 plantation exports constituted 59 percent of total exports, representing a major contribution to the Somali economy.

The colonial period also involved government employment of salaried officials and the concomitant growth of a small urban petty bourgeoisie. In the north, the British administration originally had concentrated on the coastal area for trading purposes but soon discovered that livestock to be traded came from the interior. Therefore, it was necessary to safeguard caravan routes and keep peace in port areas, requiring the development of police forces and other civil services. In British Somaliland, many of the nomads scorned European education and opposed the establishment of Christian missions. Consequently, only a small pool of literate Somalis was available to work for the British administration. Kenyans therefore were hired. In the south, however, Somalis sent children to colonial and mission schools, and the graduates found civil service positions in the police force and as customs agents, bookkeepers, medical personnel, and teachers. These civil servants became a natural market for new retail businesses, restaurants, and coffee shops. Hargeysa in the precolonial period had almost no permanent commercial establishments; by 1945, nearly 500 businesses were registered in the district. The new salaried class filled the ranks of the Somali nationalist movement after World War II. Literate in Italian or English, these urban Somalis challenged colonial rule.


Somalia - Economic Development, 1960-69


At independence the Somali economy was at a near subsistence level, and the new state lacked the administrative capacity to collect taxes from subsistence herders and farmers. The state could rely on the customs taxes from international trade, which were easier to collect, but tariffs failed to meet the needs of a government with ambitious development goals. Somalia therefore relied on Italian and British subsidies, which funded about 31 percent of the new nation's current budget in the first three years of independence.

Somalia also received grants and loans from countries in the East and the West, which made possible the articulation of an ambitious development plan by 1963. A five-year plan with a budget of more than US$100 million in grants and loans, it focused on investment in infrastructure. The plan's thesis was that plantation crops and livestock exports would increase if there were better roads, transportation facilities, ports, and irrigation works. Another large investment was made in the creation of model farms to attract farmers from around the country, who would learn improved techniques to apply on their own farms. Model farms in Baidoa in the Bay Region, Afgooye near Mogadishu, and Tog Wajaale, west of Hargeysa, were established during this period.

In the pastoral sector, the Livestock Development Agency, formed in 1965-66, emphasized veterinary services, the provision of water and of holding grounds for cattle while they were undergoing inoculation, and transportation. Somali pastoralists responded with enthusiasm to the prospects for wealth by entering the international market for livestock. In the early 1960s, the value and number of exported livestock approximately doubled, and livestock soon surpassed bananas as Somalia's leading export.

There were therefore some notable successes among Somalia's early development projects. The nation became nearly selfsufficient in sugar, and banana exports grew, albeit haltingly. Livestock exports increased, and investments in roads and irrigation facilities resulted in some genuine improvements.

But the 1960s also yielded great disillusionment. The country could not overcome its dependence on foreign assistance, even to meet its current budget. Moreover, imports of foreign grains increased rapidly, indicating that the agricultural sector was not meeting the needs of the growing urban population. The modern agricultural techniques of state farms had little influence on traditional farming practices. Because of a boom in livestock export from Hargeysa, cows, goats, and camels were becoming concentrated in northern Somalia, much to the detriment of rangelands. The UN Food and Agriculture Organization (FAO) foresaw the dire effects of the 1974 drought in a 1967 report that noted the severe range deterioration. Finally, and perhaps most important, many Somalis were enervated by the feeling that political incumbents, through electoral manipulations, were squandering the nation's economic resources for their private benefit.


Somalia - Scientific Socialism, 1970-75


Mahammad Siad Barre legitimated his 1969 coup d'état in terms of the national economic malaise. On October 20, 1970, the first anniversary of the coup, he announced:


In our Revolution we believe that we have broken the chain of a consumer economy based on imports, and we are free to decide our destiny. And in order to realize the interests of the Somali people, their achievement of a better life, the full development of their potentialities and the fulfillment of their aspirations, we solemnly declare Somalia to be a Socialist State.

Relying on Soviet advisers and a committed group of Italianeducated Somali "leftist" intellectuals, Siad Barre announced the 1971-73 Three-Year Plan. The plan emphasized a higher standard of living for every Somali, jobs for all who sought work, and the eradication of capitalist exploitation. Agricultural "crash programs" and creation of new manufacturing plants were the immediate results.

Siad Barre quickly brought a substantial proportion of the modern economy under state control. The government nationalized banks, insurance companies, petroleum distribution firms, and the sugar-refining plant and created national agencies for construction materials and foodstuffs. Although the Somali neologism for socialism, hantiwadaag, could be translated as the "sharing of livestock," camel herds were not nationalized, and Siad Barre reassured pastoralists that hantiwadaag would not affect their animals. To mollify international business, in 1972 Siad Barre announced a liberal investment code. Because the modern economy was so small, nationalization was more showmanship than a radical change in the economy.

The creation of cooperatives soon became a cornerstone in building a socialist economy. In 1973 the government decreed the Law on Cooperative Development, with most funds going into the agricultural sector. In the precoup years, agricultural programs had received less than 10 percent of total spending. By 1974 the figure was 29.1 percent. The investment in cooperatives had limited long-term results, however. In Galole near Hargeysa, for example, a government team established a cooperative in 1973, and government funds helped purchase a tractor, a cooperative center, and a grain storage tank. Members received token salaries as well. But in July 1977, with the beginning of the Ogaden War, state involvement in Galole ended; by 1991 the cooperative was no longer in operation.

Cooperatives also aimed at the nomad, although on a smaller scale. The 1974-78 Development Plan allocated only 4.2 percent of the budgeted funds to livestock. Government officials argued that the scientific management of rangeland--the regeneration of grazing lands and the drilling of new water holes--would be possible only under socialist cooperation. In the fourteen government-established cooperatives, each family received an exclusive area of 200 to 300 hectares of grazing land; in times of drought, common land under reserve was to become available. The government committed itself to providing educational and health services as well as serving as a marketing outlet for excess stock. Neither agricultural nor fishing cooperatives, however, proved economically profitable.

Integrated agricultural development projects were somewhat more successful than the cooperatives. The Northwest Region Agricultural Development Project, for example, survived the 1980s. Building upon the bunding (creation of embankments to control the flow of water) done by the British in the 1950s and by the United States Agency for International Development (AID) in the 1960s, the World Bank picked up the program in the 1970s and 1980s. Yields from bunded farms increased between 2.40 and 13.74 quintals per hectare over the yields from unbunded farms. However, overall improvement in agricultural production was hardly noticeable at a macroeconomic level.

Somalia's rural-based socialist programs attracted international development agencies. The Kuwait Fund for Arab Economic Development (KFAED), AID, and the FAO participated first in the Northern Rangelands Development Project in 1977 and in the Central Rangelands Project in 1979. These projects called for rotating grazing areas, using reserves, and creating new boreholes, but the drought of 1974 and political events undid most efforts.

During 1974-75 a drought devastated the pastoral economy. Major General Husseen Kulmiye headed the National Drought Relief Committee, which sought relief aid from abroad, among other programs. By January 1975, China, the United States, the European Economic Community, the Soviet Union, Italy, Sweden, Switzerland, Sudan, Algeria, Yugoslavia, Yemen, and others had pledged 66,229 tons of grain, 1,155 tons of milk powder, and tons of other food products. Later that year, with aid from the Soviet Union, the government transported about 90,000 nomads from their hamlets to agricultural and fishing cooperatives in the south. The regime established new agricultural cooperatives at Dujuuma on the Jubba River (about 18,000 hectares), Kurtun Waareycnear the Shabelle River (about 6,000 hectares), and Sablaale northwest of Chisimayu (about 6,000 hectares). The KFAED and the World Bank supported irrigation projects in these cooperatives, in which corn, beans, peanuts, and rice were planted. Because the government provided seeds, water, management, health facilities, and schools, as well as workers' salaries, the farms were really state-owned farms rather than cooperatives. Essentially, they became havens for women and children because after the drought the men went off inland with whatever money they had accumulated to buy livestock to replenish their stock of animals.

The government also established fishing cooperatives. Despite a long coastline and an estimated potential yield of 150,000 tons per year of all species of fish, in the early 1970s fishing accounted for less than 1 percent of Somalia's gross domestic product ( GDP). In 1975 cooperatives were established at Eyl, a post in the Nugaal region; Cadale, a port 1200 kilometers northeast of Mogadishu; and Baraawe. The Soviet Union supplied modern trawlers; when Soviet personnel left Somalia in 1978, Australia and Italy supported these fishing projects. Despite their potential and broad-based international support, these cooperatives failed to become profitable.

Siad Barre emphasized the great economic successes of the socialist experiment, a claim that had some truth in the first five years of the revolution. In this period, the government reorganized the sole milk-processing plant to make it more productive; established tomato-canning, wheat flour, pasta, cigarette, and match factories; opened a plant that manufactured cardboard boxes and polyethylene bags; and established several grain mills and a petroleum refinery. In addition, the state put into operation a meat-processing plant in Chisimayu, as well as a fish-processing factory in Laas Qoray northeast of Erigavo. The state worked to expand sugar operations in Giohar and to build a new sugar-processing facility in Afgooye. In three of the four leading light industries--canned meats, milk, and textiles--there were increases in output between 1969 and 1975.

Progress in the early socialist period was not uniform, however. The government heralded various programs in the transport, packaging, irrigation, drainage, fertilization, and spraying of the banana crop. Yet, despite the boom year of 1972, banana exports declined.


Somalia - The Socialist Revolution After 1975


Popular enthusiasm for the revolution began to dissipate by the mid-1970s. Many officials had become corrupt, using their positions for personal gain, and a number of ideologues had been purged from the administration as potential threats to their military superiors. Perhaps most important, Siad Barre's regime was focusing its attention on the political goal of "liberating" the Ogaden (Ogaadeen) rather than on the economic goal of socialist transformation. The Somali economy was hurt as much by these factors and by the economic cost of creating a large modern army as it was by the concurrent drought. Two economic trends from this period were noteworthy: increasing debt and the collapse of the small industrial sector.

During the 1970s, foreign debt increased faster than export earnings. By the end of the decade, Somalia's debt of 4 billion shillings equaled the earnings from seventy-five years' worth of banana exports (based on 1978 data). About one-third was owed to centrally planned economies (mainly the Soviet Union, US$110 million; China, US$87.2 million; with small sums to Bulgaria and the German Democratic Republic East Germany). Another one-third of the debt was owed to countries in the Organisation for Economic Cooperation and Development (OECD). Finally, one-third was owed to members of the Organization of the Petroleum Exporting Countries (OPEC) (principally Saudi Arabia, US$81.9 million; Abu Dhabi, US$67.0 million; the Arab Fund for Economic and Social Development, US$34.7 million; Kuwait, US$27.1 million; and smaller amounts to Iraq, Qatar, the OPEC special account, Libya, and Algeria, in that order). Many loans, especially from the Soviet Union, were, in effect, written off. Later, many loan repayments to OECD states were rescheduled. But thanks to the accumulated debt burden, by the 1980s the economy could not attract foreign capital, and virtually all international funds made available to Somalia in rescheduling agreements came with the provision that international civil servants would monitor all expenditures. As a result of its international debt, therefore, Somalia lost control over its macroeconomic structure.

A second ominous trend in the 1975-81 period was the decline of the manufacturing sector. Exports of manufactured goods were negligible when the 1969 coup occurred; by the mid-1970s, manufactured goods constituted 20 percent of total exports. By 1978, as a consequence of the Ogaden War, such exports were almost nonexistent. Production likewise suffered. In 1969 Somalia refined 47,000 tons of sugar; by 1980 the figure was 29,100 tons (all figures are for fiscal year ( FY). In 1975 the country produced 14.4 million cans of meat and 2,220 tons of canned fish. In 1979 it produced 1.5 million cans of meat and a negligible amount of canned fish. Textile output rose over the period. The only material produced, however, was a coarse fabric sold to rural people (and worn by the president) at less than cost. In milk, pasta, packaging materials, cigarettes, and matches, the trend was downward in the second half of the 1970s.


Somalia - From Scientific Socialism to "IMF-ism," 1981-90


Its socialist program in disarray and its alliance with the Soviet Union lost in the wake of the 1977-78 Ogaden War, Somalia once again turned to the West. Like most countries devastated by debt in the late 1970s, Somalia could rely only on the nostrums of the IMF and its program of structural adjustment.

In February 1980, a standby macroeconomic policy agreement with the IMF was signed, but not implemented. The standby agreements of July 1981 and July 1982 were completed in July 1982 and January 1984, respectively. To meet IMF standards, the government terminated its policy of acting as the last-resort employer of all secondary school graduates and abolished its monopoly on grain marketing. The government then prepared a medium-term recovery program consisting of a public investment program for 1984-86 and a phased program of policy reforms. Because the International Development Association (IDA) considered this program too ambitious, the government scaled down its projects, most notably the construction of the Baardheere Dam, which AID had advised against. The government abandoned its first reform program in 1984. In March 1984, the government signed a letter of intent accepting the terms of a new US$183 million IMF extended credit facility to run for three years. In a Somali Council of Ministers meeting in April, however, this agreement was canceled by one vote, as the soldier-ministers chafed at the proposed 60 percent cut in the military budget. The agreement also called for a further devaluation of the shilling and reductions in government personnel.

A new crisis hit Somalia in June 1983. The Saudi Arabian government decided to stop importing Somali cattle, and this ban soon was expanded to include sheep and goats. Saudi officials claimed that rinderpest had been detected in Somali livestock, making them unsafe. Cynics pointed out that Saudi businessmen recently had invested in Australian ranches and were seeking to carve out an export market for their product. In any event, the ban created a large budget deficit, and arrears on debt service started to accumulate. A major obstacle to expanding livestock and other exports was Somalia's lack of communications infrastructure: good roads and shipping facilities as well as effective telecommunications and postal services. Lack of banking facilities also posed a problem. Somalia could not easily avoid the medicine of structural adjustment.

In March 1985, in negotiations with the Paris Club (the informal name for a consortium of eighteen Western creditor countries), Somalia's debt service schedule was restructured, and the government adopted a reform program that included a devaluation and the establishment of a free market for foreign exchange for most private transactions. In November 1985, in conjunction with the Consultative Group of Aid Donors, a technical body of the Paris Club, the government presented its National Development Strategy and Programme with a revised three-year investment program. Western aid officials criticized this program as too ambitious. In June 1986, the government negotiated an agricultural sector adjustment program with IDA. In September 1986, a foreign exchange auction system was initiated, but its operation encountered severe difficulties because to its complete dependence on external aid. Many exchange rates applicable to different types of transactions consequently came into existence.

AID prepared a second-stage project report in 1986 that renewed the call for privatization. It praised the government for permitting the free importation of petroleum products, but chided the Somalis for not yet allowing the free marketing of hides and skins. AID put great pressure on the government, especially by means of lobbyists, to take action on legislation to permit private banking. To encourage the private sector further, AID was prepared to fund the Somali Chamber of Commerce if the Somali government would allow it to become an independent body. The 1986 report went beyond privatization by calling for means of improving the government's revenue collection and budgetary control systems. Building a government capable of collecting taxes, making policy reforms, and addressing fiscal problems became the new focus. Along these lines, AID encouraged the elimination of civil service jobs. As of in 1985, although 5,000 civil servants had been dismissed AID felt that 80 percent of the civil service was still redundant. AID officials, however, urged pay raises for those in useful jobs.

Somalia's Five-Year Plan for 1987-91 largely reflected the international pressures and incentives of the IMF and AID. Privatization was written into the plan, as were development projects that were smaller in scale and more easily implemented. By 1988 the government had announced implementation of many IMFand AID-encouraged structural adjustment policies. In regard to foreign exchange, the government had taken many intermediate steps that would lead to the merger of the pegged and market rates. As for banking, legislation had been enacted allowing private banks to operate. In public finance, the government had reduced its deficit from 10 to 7 percent of GDP, as had been advised, but acknowledged that the increased taxes on fuel, rent, and sales had been only partially implemented. A value-added tax on fuel imports remained under consideration, but the tax on rental income had been increased and the sales tax raised from 5 to 10 percent. The government continued to procrastinate concerning public enterprises, holding only informal discussion of plans to liquidate unprofitable enterprises.

The IMF corrected some of the worst abuses of the socialist experiment. With the devaluation of the shilling, the real cost of foreign grain became apparent to consumers, and the relative price of domestic grain rose. Rectifying prices induced a 13.5 percent increase in agricultural output between 1983 and 1985. Inflation was tamed as well, falling from an annual rate of 59 percent in 1980 to 36 percent in 1986. World Bank officials used these data to publicize the Somali success in structural adjustment.

The overall picture was not that encouraging, however. Manufacturing output declined, registering a drop of 0.5 percent per annum from 1980 to 1987. Exports decreased by 16.3 percent per annum from 1979 to 1986. Moreover, the 0.8 percent rise in GDP per annum from 1979 to 1986 did not keep up with population growth. World Bank estimates put Somalia's 1989 gross national product at US$1,035 million, or US$170 per person, and further estimated that between 1980 and 1989 real GNP per person had declined at 1.7 percent per year.

In the period from 1987 to 1989, the economic results of agricultural production were mixed. Although corn, sorghum, and sugarcane were principal crops, livestock and bananas remained major exports. The value of livestock and banana exports in 1989 (the latest year for which data were available in May 1992) was US$26 million and US$25 million, respectively. Livestock, consisting primarily of camels, cattle, goats, and sheep, served several purposes. The animals provided milk and meat for domestic consumption, and livestock, hides, and skins for export.

As a result of the civil war in many areas, the economy deteriorated rapidly in 1989 and 1990. Previously, livestock exports from northern Somalia represented nearly 80 percent of foreign currency earned, but these exports came to a virtual halt in 1989. Shortages of most commodities, including food, fuel, medicines, and water, occurred virtually countrywide. Following the fall of the Siad Barre regime in late January 1991, the situation failed to improve because clan warfare intensified. Statistical data were minimal, however, for the period from 1990 onward.




Somalia is not well-endowed with natural resources that can be profitably marketed internationally, and at independence the economic infrastructure was poorly developed. Throughout all three eras in postindependence Somalia, officials had sought, with mixed results, to develop the economic infrastructure.


Estimates vary, but from 46 to 56 percent of Somalia's land area can be considered permanent pasture. About 14 percent is classified as forest. Approximately 13 percent is suitable for cultivation, but most of that area would require additional investments in wells and roads for it to be usable. The remaining land is not economically exploitable. In the highlands around Hargeysa, relatively high rainfall has raised the organic content in the sandy calcareous soils characteristic of the northern plains, and this soil has supported some dry farming. South of Hargeysa begins the Haud, whose red calcareous soils continue into the Ethiopian Ogaden. This soil supports vegetation ideal for camel grazing. To the east of the Haud is the Mudug Plain, leading to the Indian Ocean coast; this region, too, supports a pastoral economy. The area between the Jubba and Shabeelle rivers has soils varying from reddish to dark clays, with some alluvial deposits and fine black soil. This is the area of plantation agriculture and subsistence agropastoralism.

Practices concerning land rights varied from rural to urban areas. In precolonial times, traditional claims and interclan bargaining were used to establish land rights. A small market for land, especially in the plantation areas of the south, developed in the colonial period and into the first decade of independence. The socialist regime sought to block land sales and tried to lease all privately owned land to cooperatives as concessions. Despite the government's efforts, a de facto land market developed in urban areas; in the bush, the traditional rights of clans were maintained.

The Siad Barre regime also took action regarding the water system. In northern Somalia from 1988 to 1991, the government destroyed almost all pumping systems in municipal areas controlled by the Somali National Movement (SNM) or failing that, stole the equipment. In rural areas, the government poisoned the wells by either inserting animal carcasses or engine blocks that leaked battery acid. As a result, northern Somalis had to rely on older gravity water systems, use poor quality water, or buy expensive water. Following the declaration of the independent Republic of Somaliland in the north in May 1991, the government of the republic began ongoing efforts to reconstruct the water system.

In the south, in the late 1980s onward, as a result of war damage and anarchy, the water situation in the towns tended to resemble that in the north. Few pumping systems were operational in early 1992. Conditions in rural areas varied. Many villages had at least one borehole from which poor quality water could be obtained in buckets; pumps generally were nonfunctioning. Somalis who lived near the Jubba or Shabeelle rivers could obtain their water directly from the river.


Somalia - Energy


Somalia relied principally on domestic wood and charcoal and on imported petroleum to meet its energy needs. Attempts to harness the power of the Jubba River at the proposed Baardheere Dam had not come to fruition as of early 1992. Electrical utilities had been state owned since 1970, when foreign-owned enterprises were nationalized. Throughout the country, about eighty different oil-fired thermal and diesel power plants relied on imported petroleum. With aid from Finland, new plants were constructed in the Chisimayu and Baidoa areas in the mid-1980s.

Somalia relied on foreign donors (first the Soviet Union and then Saudi Arabia) to meet its petroleum needs. In the late 1970s, Iraq helped Somalia build a refinery at Jasiira, northeast of Baraawe, that had a capacity of 10,000 barrels a day. But when the Iran-Iraq War broke out in 1980, deliveries were suspended, and Somalia again required refined oil imports. As of mid-1989, Somalia's domestic requirements were again being met by this refinery, but deliveries of Iraqi crude oil were erratic. In May 1989, Somalia signed an agreement with the Industrial Export, Import, and Foreign Trade Company of Romania by which the company was to construct an oil refinery on the outskirts of Mogadishu. The project was to cost US$500 million and result in a refining capacity of 200,000 barrels per day. Because of events in Romania and Somalia, the refinery project had not materialized as of early 1992.

Throughout the 1980s, various international oil companies explored for oil and natural gas deposits in Somalia. In October 1991, the World Bank and the UN Development Programme announced the results of its hydrocarbon study in the countries bordering the Red Sea and the Gulf of Aden. The study indicated the potential for oil and gas in northern Somalia was good. In view of the civil war in Somalia following the fall of Siad Barre, however, various foreign oil exploration plans were canceled.

A successful innovation was the completion of a wind energy utilization project. Four wind turbines, each rated at 50 kilowatts, were embedded in the Mogadishu electrical grid. In 1988 these turbines produced 699,420 kilowatt hours of energy. Total electric energy produced in 1988, the latest year for which figures were available in early 1992, was 257 million kilowatt hours. Five self-contained wind energy conversion systems in rural centers also were planned, but as of May 1992 there was no information that these had been built.




The Somali economy in the 1980s, when viewed in standard economic terms, was characterized by minimal economic reform and declining GDP per capita. But the macroeconomic perspectives, which were based on questionable data, presented an unreliable picture of the actual Somali economy. In fact, the macroeconomic figures used by the IMF and the World Bank would lead one to wonder how any Somalis could have physically survived the recent years of economic crisis. Yet visitors to Somalia, although distressed by the civil war and the wanton killing, observed a relatively well-fed population up until the 1991-92 drought. Clearly a Somali economy existed outside the realm of international data collection. Examination of what has been called Somalia's "unconventional" economy allows a better appreciation of how the Somali economy actually worked.

Export of Labor

Somalia was an exporter of labor to other members of the League of Arab States (Arab League), and Somali citizens received remittances from these workers. These remittances constituted the largest source of foreign exchange in the economy. Based on an assumption of 165,000 Somali overseas workers, with an average annual wage of US$6,150, one-third of which was being remitted, one economist has calculated that more than US$330 million was being remitted annually. This figure represented fifteen times the sum of Somalia-based yearly wages and nearly 40 percent of total GNP, including remittances. The official remittance figure was US$30 million, the amount channeled through banks. Most unofficial remittances--in the form of foreign exchange and household goods and appliances sent home from abroad--went to urban traders. This fact explains the apparent abundance of supplies in Somali cities, which, based on the foreign exchange estimates from official sources, would not have been possible. A large portion of the remittances went to supply arms to the rural guerrillas who toppled the government in January 1991.

Export of Livestock

As the macroeconomic data made clear, Somalia was primarily an exporter of livestock to the Arab states. The macroeconomic data did not make clear the proportions in which the foreign exchange earnings from livestock exports went to the government, based on the official exchange rate of those recorded sales, and to the traders and herders themselves, based on the difference between the official and informal exchange rates plus all revenues from unofficially recorded sales. A system known as franco valuta enabled livestock middlemen to hoard a considerable foreign exchange surplus. In the livestock export sector, traders had to give the government only 40 percent of their foreign exchange earnings; the traders could import anything they wished with the remaining foreign exchange. Thus, imports were substantial amid data of collapse. One needed only to be connected to a trading family to enjoy massive increases in consumption during the 1980s. In the livestock export system, franco valuta was officially discontinued as a result of the IMF structural adjustment program, but in practice franco valuta continued to be observed.

In the 1970s, northern trading families used their profits to buy real estate, much of it in Mogadishu. In the 1980s, they helped subsidize the rebels fighting the government of Siad Barre.

Rural Subsistence Sector

Somalia's rural subsistence sector produced sufficient grain and animal products (mostly milk) to sustain the country's growing population, including its massive refugee population. According to economist Vali Jamal, data on the subsistence sector underestimated the amount of milk and grain produced. The official 1978 estimate of milk production was 451.4 million liters; by using alternate data (for example, statistics on lactating animals from an anthropology study, consumption surveys, and interviews with nomads), Jamal estimated 2.92 billion liters of production, 6.5 times the official estimate. Taking into account only this change in milk production would raise GDP by 68 percent, making Somalia the forty-first rather than the eighth poorest country in the world, with an average annual per capita income of US$406.

Jamal's data showed a 58 percent increase in grain production between 1972-74 and 1984. Production of sorghum and corn reached a high of an estimated 260,000 tons and 382,000 tons respectively in 1985, before declining in the period 1987-89. Grain imports increased sixfold, however, between the early 1970s and 1985; the increase was largely caused by the refugee influx and the added imports needed to fill the food gap. After 1980 food production increased but imports continued, primarily as a result of food aid. Governments did not cut off food aid although the need for it steadily receded. Despite donor objectives, most of the imports went to urban shops rather than rural refugee camps.

Often missed by macroeconomic analyses was the vibrant agropastoralist sector of the southern interriverine area. Families mixed pastoralism--the raising of goats and sheep, and sometimes camels--with grain production. The family unit was highly versatile, and the division of labor within it changed depending on the season and the amount of rainfall. During a drought when women were obliged to trek for days in search of water, men tended the household and crops. When water was abundant, women maintained the household, and enabling the men to concentrate on the livestock.

Trade between the pastoralist and agropastoralist sectors has been greater than standard models of the Somali GNP have assumed. Agropastoralists accumulated small grain surpluses in the 1980s, and bartered this grain to pastoralists in exchange for milk. The agropastoralists received more value from this trade than by selling their grain directly to the government because government prices for grain were lower than the growers' costs. IMF agreements with the government repealed price limits on the sale of grain; the consequences of this agreement for trade between pastoralists and agropastoralists had not been reported as of early 1992.

One of the great agricultural success stories of privatization caused great embarrassment to the IMF. Qat (also spelled "kat," catha edulis) is a mild stimulant narcotic; many Somalis chew the qat leaf during leisure time. Qat is grown in the Ethiopian highlands and in Kenya and is transported through Somalia. In the late 1960s, farmers near Hargeysa began growing it. During the drought of the 1970s, the qat plants survived and their cultivators made handsome profits. Investment in qat plants soared in the 1980s. Sales of qat enabled farmers to stay ahead of inflation during a time when prices for other crops fell. Many farmers used their profits to rent tractors and to hire day laborers; doing so enabled them to increase food production while continuing to grow qat. The large surplus income going to qat farmers created a free market in land, despite national laws prohibiting land sales. The IMF never mentioned this economic success as part of the positive results of its program. The government wrongly believed that the production of qat was cutting into grain production; the data of political scientist Abdi Ismail Samatar indicates that farmers producing qat grew more grain than those who did not produce qat. The government also believed that qat was harmful because it was making the general population drug-dependent. The Siad Barre regime hence banned qat production, and in 1984 qat fields were destroyed by government teams. Nevertheless, the qat story of the 1980s demonstrated the vibrancy of the Somali economy outside the regulatory regimes of the government and the IMF.

Urban Subsistence and Government Employment

The Somali government and its officials collected grants and bribes from foreign governments and taxes on internal trade that provided substantial wealth to the ruling elite. As of July 1991, domestic trade in the south for the most part had been disrupted. Only small quantities of goods such as fruit, sugarcane, and charcoal moved from the villages to the towns, in return for cornmeal and, since 1988, guns and ammunition. At a national level, armed trucks traveled from Jilib, on the Jubba River, or Chisimayu, to Mogadishu, carrying from the Jubba River area agricultural products such as mangoes and sesame and returning with corn, wheat, refined sugar, and diesel fuel. International trade by sea was at a virtual standstill, but goods were smuggled across the border with Kenya in return for qat primarily. In the north at the same period, the anarchic situation since 1988 had severely curtailed agricultural trade, particularly livestock exports. In addition, those farmers in areas where planting was potentially feasible in 1991, such as around Erigabo and Boorama, northwest of Horgeysa, lacked sorghum, corn, and vegetable seeds, as well as tools, and were hindered by the presence of minefields in many locations. Internationally, goods were smuggled across the Ethiopian border, largely in exchange for qat.

The funds collected in the past on internal trade also provided below-subsistence wages to a number of urban Somalis because for much of the 1980s the government served as the employer of last resort of all secondary-school graduates. Using these revenues, the government also sustained an army that was in continual warfare beginning in 1977, first against Ethiopia, and then against an internal guerrilla movement.

Largely as a result of structural adjustment in the latter half of the 1980s, government employment was not lucrative at face value. A family of six needed an estimated 6,990 shillings monthly for food, clothing, rent, fuel, light, and water. The highest civil service salary was 2,000 shillings per month, of which 525 shillings was deducted for taxes and other charges. The highest take-home pay, including allowances, in government was about 2,875 shillings.

Urban wages that were inadequate to address basic human needs might lead an analyst to expect near-starvation in urban Somalia. However, a 1984-85 household survey in Mogadishu reported that only 17 percent of the city's families lived below the poverty threshold. A November 1986 study in the Waaberi district of Mogadishu found only 7 percent had incomes below the poverty line. Informal observations of urban life in Somalia reported in the 1980s concurred that the population appeared well-fed.

The puzzle of low government wages coupled with a reasonable urban standard of living can be solved by examining the survival strategies of urban families. In the potential urban labor force of 300,000 to 360,000 people, there were only 90,282 wage earners, which suggested that government employment was only one part of a family survival strategy. Many families had one member working for the government, not so much for the salary, but for the access to other officials that enabled the family to engage in quasi-legal trading activities. Remittances from overseas prevented starvation for some families. Many urban families had members who were livestock traders and through franco valuta had access to foreign exchange. Many government workers prospered on bribery from the profiteers in the so-called gray economy. Other government workers could obtain "letters of credit" (the right to draw funds from government-held foreign exchange accounts) allowing them to import goods for sale and for family use. Still other civil servants moonlighted for international agencies, receiving valuable foreign currency for their efforts. These strategies were excluded from most macroeconomic assessments.

Undeveloped Sectors

Plantation Economy

In the early 1990s, the plantation economy remained undeveloped, even for bananas, which remained Somalia's principal cash crop and second most important export, after livestock. Because of government taxation of exports, this sector had been in decline in the early 1980s. In 1983 the government National Banana Board formed a joint venture with an Italian company to create Somalfruit. The higher producer prices, increased input availability, and improved marketing and shipping facilities resulted in a 180-percent increase in banana production from 60,000 tons in 1980 to 108,000 tons in 1987. By 1986 banana exports accounted for 13 percent of total exports, up from just over 1 percent in 1982.


Somalia's mineral sector was of minuscule value in the overall Somali economy (in 1988 it represented only .3 percent of GDP). There was some production of salt with solar evaporation methods, mining of meerschaum (sepiolite) in the Galguduud Region, mining of limestone for cement in the Berbera and Baardheere areas, and some exploitation of some of the world's largest deposits of gypsum-anhydrite near Berbera, and of quartz and piezoquartz (useful for electronics). Somalia also has some large uranium deposits in the Galguduud and Bay regions, and in 1984 work began to develop them. In the Bay Region, there are also large iron ore deposits. The development plan in 1986 reported that results of natural gas exploration in Afgooye near Mogadishu were negative, but indications of favorable oil and gas resources in the country persisted. Results of testing for gold in the Ceelbuur area in Galguduud Region and Arabsiyo area near Hargeysa had not been published as of early 1992.


Nearly 14 percent of Somalia's land area was covered by forest in 1991. Frankincense and myrrh, both forest products, generated some foreign exchange; for example, in 1988 myrrh exports were valued at almost 253 million shillings. A government parastatal in 1991 no longer had monopoly rights on the sale of frankincense and myrrh, but data on sales since privatization were not available. Savanna trees had been Somalia's principal source of fuel, but desertification had rapidly eroded this fuel source, especially because refugees from the Ogaden War had foraged the bush in the vicinity of refugee camps for fuel. The government's 1988 development report stated that its sand dune stabilization project on the southern coast remained active: 265 hectares of a planned 336 hectares had been treated. Furthermore, thirty-nine range reserve sites and thirty-six forestry plantation sites had been established. Forestry amounted to about 6 percent of the GDP.


In part because Somalia has 3,025 kilometers of coastline, fishing was a sector with excellent economic potential. Considerable attention had been paid to this sector, especially since the 1974 drought, when 15,000 nomads were resettled in fishing cooperatives. Data in the latter half of the 1980s showed improvement in the fishing industry. Food and Agriculture Organization estimates of total tons of fish caught and processed rose from 16,900 in 1986 to 18,200 in 1988, an increase that resulted from the development of a national fishing fleet. Yet fishing remained a largely unexploited sector, contributing less than 1 percent of GDP in 1990.


Manufacturing achieved some success in the early 1970s, and was primarily based on processing of agricultural product. In 1986 the government planned to bring its sugar- and milkprocessing plants up to full production, to add a new cement factory in Berbera, and to contract with an Italian firm to operate its urea factory, which was producing at less than 30 percent of capacity. In 1989 a hides- and skins-processing plant in Mogadishu was completed with Italian government financing. Despite this activity, manufacturing did not respond to IMF incentives as well as agriculture had. In 1988 there was a decline of 4.9 percent in production. The decline followed a 5 percent increase in 1987. The government blamed the decline on shortages of inputs and spare parts and on poor management. By 1990 manufacturing had all but ceased to play a significant role in the economy, contributing only about 5 percent of GDP.

Foreign Trade

Somalia's major exports consisted of agricultural raw materials and food products. Livestock was the principal export, with sheep and goats representing the leading categories, followed by cattle and camels. Banana exports rose sharply in the 1980s and by 1986 occupied second place, followed in descending order by hides and skins, fish and fish products, and myrrh.

The largest single import was food, with 1986 food imports reflecting the effects of the drought being experienced in the area. Transportation equipment was in second place among imports, followed by nonelectrical machinery, mineral fuels, cement and building materials, and iron and steel.

In 1990 Italy was the leading importer of Somali goods, having narrowly replaced Saudi Arabia. Other Arab states, such as Yemen and the United Arab Emirates, were also important customers for Somali products. In 1990 Italy was the primary country of origin for goods imported into Somalia, with other nations such as Norway, Bahrain, and Britain distant sources of imports. Somalia consistently experienced an overall negative trade balance, which contributed to its balance of payments deficit.

In summary, with the 1991 overthrow of Siad Barre's government, Somalia faced a new era. Past economic experience had taught valuable lessons. First, the Somali people have for millennia been able to survive and even prosper in a harsh environment, whether it be natural or political. Second, grand economic strategies, whether from Benito Mussolini, Karl Marx, or the IMF, have not provided Somalia with a means to live beyond the subsistence level. Third, the handful of successful projects in the colonial, postindependence, socialist, and IMF-led economies suggest that a nondoctrinaire combination of approaches could promote a richer economy.


CITATION: Federal Research Division of the Library of Congress. The Country Studies Series. Published 1988-1999.

Please note: This text comes from the Country Studies Program, formerly the Army Area Handbook Program. The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.

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