Somalia: Five Challenges for Somalia's Economic Reconstruction

 

Somalia: Five Challenges for Somalia's Economic Reconstruction

Mogadishu is once again calm. Somalia.

Nairobi — Somalia's economy has managed to survive state collapse, maintaining reasonable levels of output throughout the country's two-decade-long civil war. Now, with political recovery and transition slowly underway, the country's economy faces new hurdles.
Investors have come to Somalia looking to cash in on the rebuilding process and abundant natural resources in areas such as agriculture and livestock, fisheries, and oil and gas.
More innovative fields, such as mobile technology, have also been taking off, although they still only impact a minority of the population (22.5 out of every 100 inhabitants have a mobile phone subscription in Somalia, significantly lower than the developing world average of 84.3).
It is hoped these developments will lay the groundwork for broader economic growth. The second pillar of the president's Six Pillar Strategy to stabilize the country is economic recovery. In line with this, Somalia aims to build a transparent, formalized, globally competitive economy that collects tax revenues.
But the government faces a number of challenges as it works towards these goals. IRIN looks at some of the most pressing problems.
Certification
Somalia's government does not have the capacity to participate in certification schemes or to provide authenticity documentation that would enable businesses to sell goods globally. Firms instead have to find unconventional, and often costly, workarounds.
Although sesame seeds are grown in large quantities in Somalia - in 2012 the country was the 12th largest producer in the world - exporting them is a challenge.
"Just before the famine, there was a very good season of sesame, and I remember talking with a businessman who explained he was forced to take the sesame in Somalia and nationalize it in some way in Indonesia to sell it to Germany," said Luca Alinovi, regional director of the Food and Agricultural Organization (FAO) at a recent event in Nairobi on Somalia's foreign direct investment prospects.
"This is quite an inefficient way to deal with it - but the only way if you're not able to have a proper certificatory regime, a proper EPA [Economic Partnership Agreement] between Somalia and Europe."
Alinovi notes that similar mechanisms are used when it comes to exporting many fishery products.
"This means that the government of Somalia loses money," he said. "We need to have much stronger capacity to support the country and the people to have those regulatory frameworks which help the people do business properly."

Trade difficulties
Somalia is not a member of any regional economic blocs, and it has few formal trade deals with other nations. The US and the European Union currently have no trade agreements with Somalia, and the country is not a member of the World Trade Organization, compounding the difficulties local firms face when competing regionally and internationally.
In 2012, Somalia exported goods worth US$693 million (509 million euros), according to data from the European Commission's Directorate-General for Trade.
While this represents a significant increase - in 2008, exports were less than half that number - the country still runs a large trade deficit. In 2012, its imports were valued at $1,818 billion (1,335 million euros).
It also exports less than other countries: Somalia is the 171st largest exporter in the world, and it has the fourth lowest GDP per capita, according to the CIA World Factbook