Date: Sun, 23 Feb 2014 23:48:48 +0100
Five challenges for Somalia's economic reconstruction
By
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction> Anjli Parrin
NAIROBI, 23 February 2014 (IRIN) - Somalia's economy has managed to survive
state collapse, maintaining
<http://www.humanitarianfutures.org/wp-content/uploads/2014/01/SOMALIA-REPOR
T-FINAL.pdf> 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
<http://www.irinnews.org/report/95480/somalia-mogadishu-on-the-up> 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
<http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx> 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
<http://www.peaceau.org/en/article/report-of-the-african-union-commission-on
-the-strategic-review-of-the-african-union-mission-in-somalia-amisom> 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
<http://faostat.fao.org/site/569/DesktopDefault.aspx?PageID=569#ancor> 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
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
investmenthttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png
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
<http://www.irinnews.org/report/97049/somalia-potential-goldmine-for-fisherm
en-as-piracy-declines> 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
<http://trade.ec.europa.eu/doclib/docs/2011/january/tradoc_147385.pdf> 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
<https://www.cia.gov/library/publications/the-world-factbook/geos/so.html>
171st largest exporter in the world, and it has the fourth lowest GDP per
capita, according to the CIA World Factbook.
Somalia's biggest export market is to the United Arab Emirates (UAE), which
takes in more than half its total exports. Just three countries (UAE, Yemen
and Oman) account for 82.5 percent of all exports, predominantly in
livestock, out of Somalia.
Regional partners often impose strict restrictions on Somalia, mainly out of
security fears. "Borders sometimes are closed," said Hassan Noor, CEO of
Hanvard Africa, a consultant firm that focuses on East Africa. "People fly
from Mogadishu direct to Istanbul. They can fly to
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
Dubaihttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png. But they
can't fly to the next-door neighbor." (There are no direct flights between
Mogadishu and Ethiopia, for example, although there are to Djibouti, Kampala
and Nairobi.)
As a result, businesses have to go to great lengths to trade with other
countries. "Businesses register in
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
Dubaihttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png in order
to get access to finance and the like," said Nick Haslam of advisory firm
Adam Smith International.
This also means that businesses are less transparent. "Who is behind certain
business sectors? It's like an onion. Every time you peel some layer, you
discover other friends behind it without necessarily being very officially
present," added Alinovi.
Currency reform
Restoring the credibility of Somalia's currency will also be crucial to
economic development. The Central Bank has identified "the introduction of
new and unified currency" for Somalia as one of its strategic goals for the
next five years.
"There were (and still are) several versions of the same currency (Shilling)
in circulation concurrently, and most of them are fake currencies," the bank
<http://media.wix.com/ugd/beb93a_ddebe3f60bb320c0c1d4819443341dbd.pdf> noted
in its Strategic Plan 2013-2018.
Since the early 1990s, no bank notes have been printed officially. "The
collapsing of the Central Bank and the banking system left a vacuum for
monetary and regulatory control and totally shattered the country's payment
system," noted the report. This led to "currency substitution and the growth
of the parallel currency market," with warlords and militias issuing their
own currency.
This means that there is a large black market for currency. Officially,
Somalia's shilling trades at around 1,200 to the US dollar, but it is about
15 times that rate on the black market.
In <http://www.imf.org/external/pubs/ft/survey/so/2013/CAR062413A.htm>
mid-2013, the International Monetary Fund resumed relations with Somalia
after 22 years. For now, it will not provide
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
loanshttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png to the
country, but it pledged to provide technical assistance and highlighted
currency reform as a major priority.
But the Central Bank is still struggling. Central Bank Governor Yussur Abrar
<http://www.irinnews.org/report/99461/political-infighting-threatens-somalia
-s-government> resigned in November after just seven weeks, citing claims of
corruption and government interference, and while an interim leader has been
appointed, the Bank has yet to find a full-time replacement.
"There's a lack of capacity, and also there's huge corruption," said Shirwa
Jama, the International Development Law Organization's Somalia country
representative. But he noted that "all these things can really be addressed
if the government has the commitment to improve rule of law, to capacitate
and work with international partners."
Managing oil deals and revenue
Nowhere are the problems and potential of the Somali economy better
exemplified than in the oil and gas industry.
There are massive reserves, and even before the collapse of government,
large firms were exploring the possibility of mining oil and gas. But lack
of legislation and political wrangling at regional and national levels
impede development in this sector.
"There is currently growing hostility between the Federal Government of
Somalia and regional administrations that have signed oil deals
independently of the government," a UN Monitoring
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction> group
onhttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png Somalia and
Eritrea noted in a July
<http://www.un.org/ga/search/view_doc.asp?symbol=S/2013/413> letter to the
Security Council. Divergence between the 2008 petroleum law - which is
invoked by Federal Government petroleum officials - and Somalia's
Constitution is exacerbating this hostility."
Some large firms, including BP, Chevron and ConocoPhillips still hold
<http://online.wsj.com/news/articles/SB1000142405270230344200457912131076191
7156> exploration rights
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
datinghttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png back to
before the civil war and have had discussions with the central government.
In August, Soma Oil and Gas, a British firm founded earlier in 2013, signed
an agreement with Mogadishu to begin exploring oil - much to the chagrin of
the Puntland and Somaliland governments, which have separate deals with
other firms.
It remains unclear how old contracts will be resolved and who will have the
ultimate right to negotiate new deals. "Oil and gas has huge potential, but
the current uncertainty surrounding federal and regional states and the lack
of agreement over resource sharing and taxation means that it will be very
difficult for that sector to take off until those issues are resolved,"
noted Haslam.
Social engagement
There is also a need to ensure that economic growth benefits the people,
especially as foreign direct
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
investmenthttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png
grows.
Following the collapse of the Siyad Barre regime in 1991, the private sector
stepped in to provide most basic goods and services, and has actually
performed
<https://www.cia.gov/library/publications/the-world-factbook/geos/so.html>
relatively well throughout this period despite rampant insecurity and lack
of infrastructure.
"Everything is being provided by the private sector - water, electricity,
telecommunications, everything," said Hanvard Africa's Noor. "In the absence
of a government, in the absence of a regulatory framework, with nobody else
coming to provide those services, they had to do what they could do."
"Businesses have created their own informal, enabling environment," said
Haslam. "People form strong networks to overcome [poor] access to finance,
for example, relying on customary or Sharia law to overcome disputes, and
local knowledge is paramount."
But while a system of customary law and close clan ties worked to support
society (through mechanisms such as
<http://www.humanitarianfutures.org/wp-content/uploads/2014/01/SOMALIA-REPOR
T-FINAL.pdf> Zakat - giving a proportion of one's wealth to charity), some
of these networks are now being eroded, argues Alinovi. "Because of a set of
changing mechanisms in the inter-clan relations in the last 20 years, a lot
of the obligation that the businessmen used to have to the society, for the
social fabric surrounding [them], has begun disappearing," he said. "The
businesses in Somalia are becoming less relevant for the society."
With international
<http://www.irinnews.org/report/99647/five-challenges-for-somalia-s-economic
-reconstruction>
investmenthttp://cdncache1-a.akamaihd.net/items/it/img/arrow-10x10.png,
there are fears that the influx of foreign money will give rise to greater
cronyism and corruption. "Risk is for the investor, but also risk is for the
local people," said Noor. "We don't want to become like Niger Delta
<http://www.irinnews.org/report/98155/rising-niger-delta-oil-theft-threatens
-security> ."
aps/rz
(image/png attachment: image001.png)
(image/png attachment: image002.png)