Somalia has been deeply affected by a civil war since 1991 when the government of Siad Barre was overthrown by local tribal factions. Conflict has engendered extreme poverty, vulnerability and a complex set of political and social grievances that remain a threat to the country’s future development. Somalia’s gross domestic product is projected to reach $6.2 billion in 2016, with income per capita of $450 and a poverty headcount rate of 51.6 percent. Over two decades of conflict concentrated mainly in southern Somalia destroyed much of the country’s governance structure, economic infrastructure and institutions. Only 42 percent of school-age children are estimated to be enrolled in primary school, of which just 36 percent are girls. The economy is highly dependent on imports, which account for more than two-thirds of the national income with the share of exports to national income being 14%. The large trade deficit is mainly financed by remittances and international aid.

In August 2012 the Federal Government of Somalia came to power under a provisional constitution approved by a new parliament, thus ending Somalia’s long period of revolving transitional government at the federal level. Since its establishment, the government has emphasised improved governance and economic management as key pillars of its development plan and is laying the foundations for the implementation of a federal system of governance. The new government inherited high levels of poverty and inequality, a youth bulge, high unemployment and large infrastructure gaps. It has embarked on a programme of structural, legislative and institutional reform.

According to the African Development Bank over the past four years, real GDP growth has been moderate, averaging about 3.4%. Real GDP growth slowed  to an estimated 2.4% in 2017, due mainly to the ongoing drought, and is projected to recover to 3.5% in 2018 and 2019. The main drivers in 2017 were construction, telecommunications, and financial services. The rise in GDP growth in 2018 and 2019 is expected to be driven by a recovery in the agriculture, higher private-sector investment, and improved security. Inflation, which has been contained by dollarization and the sharp decline in oil prices, is predicted to remain around 2.7% in 2018 and 2019.

DFID Somalia Strategy

International donors confirmed support for the government’s development priorities at the Somalia Conference in London in May 2013. The top priorities for DFID Somalia (covering the three Somalia territories of Somalia, Puntland, Somaliland) are:

  1. Strengthening political settlements, accountable governance, security and local reconciliation
  2. Addressing immediate social development needs among the most vulnerable populations
  3. Expanding work on growth and growth transmission. The work of DFID Somalia covers South Central, Puntland and Somaliland, recognising the differences in context and opportunities.

The DFID Somalia programme supports the achievement of the New Deal state-building and peace-building goals. They channel a large part of their aid through the Somali Development and Reconstruction Facility, set-up under the New Deal to encourage aid delivery through consolidated multi-donor funds, in particular those managed by the World Bank and the United Nations.

The programme has a particular focus on

  1. governance and peace-building, supporting the political settlement, and building the capacity of institutions and conflict resolution mechanisms at the federal and sub-federal levels;
  2. economic development, through a large new programme promoting private sector development, income generation, and growth transmission;
  3. human development, building a healthcare system and delivering basic health services for women and children; and
  4. humanitarian assistance and building the resilience of the most vulnerable to humanitarian shocks.

World Bank Doing Business

Somalia’s economy, with 75% unemployment and a government in Mogadishu just beginning to function, faces innumerable constraints. Somalia is ranked second on the Fragile States Index (after South Sudan).  Doing Business ranking in 2018 was 190 out of 190 countries, as it was in 2017. The Distance to Frontier score was 19.98 in 2018, slightly lower than it was in 2017. Reforms reported in 2018 include:

  1. Starting a Business: Sierra Leone made starting a business easier by combining multiple registration procedures.
  2. Trading across Borders: Sierra Leone made trading across borders easier through a series of initiatives, including the elimination of export permits and the implementation of pre-arrival processing

During the civil war, business owners provided essential services, such as electricity, water, telecommunications and trade, and performed critically important functions at a difficult time in Somalia’s history. However, they are now forming monopolies and cartels, fixing prices and aggressively asserting control over new industries, sometimes violently. Their wealth gives them political influence, which they use to affect legislation and the exercise of government authority over rivals and friends. This problem of elite capture discourages new businesses from starting up and small and medium ones – including women-owned businesses – from growing. It reduces the flow of investment for new jobs and stifles competition, which contribute to high prices ($1.00 plus per kilo Watt hour energy) and poor quality.