NS4301 Summer Term 2015 Somalia Political Economy

NS4301 Summer Term 2015

Somalia Political Economy

Plan

• A General Outlook to the Somalia

• Information

• Why Turkey is interested in Somalia? (Soft Power)

• Historical Ties and Current Economic Relations

• The Future of Somalia Economic Growth

• Opportunities

• The Role of Government

• The Challenges for Somalia’s Economic Reconstruction

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General Outlook

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General Outlook

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General Outlook

• Capital City: Mogadishu

• Population: 10,616,380 (est.)

• %85 Somali, and %15 Bantu and non-Somali (including Arabs), majority is the Sunni Muslim

• Median age for men: 17,9 women:17,6

• Infant mortality rate: 98,39 / 1000 live births

• Child labor: %49 (2006 est.)

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General Outlook

• Somalia maintains an economy largely based on livestock, remittance/ money transfer companies, telecommunications.

• Agriculture is the most important sector:

Accounts for %40 of GDP and %50 of export earnings.

• Principal exports: livestock, hides, fish, charcoal, and bananas.

• Principal imports: sugar, sorghum, corn, machined goods.

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General Outlook

• GDP (Purchasing Power Parity)

• 2008 ($5.607 billion)

• 2009 ($5.75 billion)

• 2010 (5.896 billion)

• Country Comparison to the World: 169

• GDP (Per Capita): $600(est.), ranks 229 among 230 countries

(only better than Central African Republic)

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History

• Britain and Italy colony for a long time

• Became independent in 1960.

• Ruled by dictator Siad Barre until 1991

• Civil War started in 1991 and took almost two decades

• Al-Shabab: the biggest threat to Somalia Government

• The country lacks the even basic infrastructures,

Basic education and health needs , and there is no government operating properly.

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Turkey’s Interest in Somalia

- What is soft power?

- Assets of Soft power:

- Foreign Policy

- Culture and History

- Politics

- Economy and military can also be the assets of soft power, if they are used in humanitarian contexts.

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- The relations date back to 15th century. (Ottomans and Somalis)

- Somalia’s coastal sides were controlled by Ottoman Sultanates in 17th century.

- Contemporary relations started with the opening of the Turkish Embassy in 1979.

- In May 1993, a Turkish General appointed as the commander of UN Forces in Somalia.

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- After the end of the Cold War, Turkey’s foreign policy started to change, focusing particularly on Muslim countries of former Ottoman Empire, including Somalia and other states in Africa.

- Search for export markets, geopolitical interests, geographical proximity and shared cultural, historical and religious links made Somalia a natural candidate for Turkey’s attention.

- Since 2011 (devastating drought in Somalia), Turkey’s humanitarian aid to Somalia exceeded $400 million, helping the reconstruction of the state by providing education, health, transportation, and security aids.

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Future of Somalia’s Economy

Lt. Sinan Kose

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Challenges of Somalia’s Economy

• Somalia as being a country that is coming out of two decades of civil war, economic challenges are many and addressing them will not happen overnight.

• Security situation is improving but still volatile.

• The governance is fragile and lacks the capacity to carry out basic functions of governing in providing security and economic opportunity.

• Credible public revenue “ taxation” systems is not fully functioning. Without taxation, creating jobs, reconstruction of infrastructure, health and education is very challenging.

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• The majority of the citizens are very poor with not much money to spend outside of their daily necessities such as food, water and shelter.

• Government vision in infrastructure development programs to create jobs and elevate poverty is very limited.

• Institutionalized corruption in the government, the private sector and Non-Governmental organizations is a major problem hindering economic development.

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Challenges of Somalia’s Economy


These are huge economic challenges, however there are abundance of economic opportunities;

The overall security situation is improving:

The threat of Al Shabab is fading and will continue to fade as African Union and Somali troops put more pressure on them and better intelligence dries up their finances and resources.

Somalia has abundance natural resources that are in high demand all over the world:

There is growing demand for Somali livestock and farm products in the growing economies of the Middle East and China. 15


The Somali economy is powered by remittances from overseas:

North America and Europe are the main sources of remittances. The falling oil prices have left money in the pockets of the citizens of these countries.

During the civil war, Somalis investors invested places like United Arab Emirates and Kenya:

As the security situation improves, Somali investors will be shifting money from overseas to Somalia.

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The number of Somalis that have left the country during the civil war is estimated at more than 4 million. Most have left since 1990 and have settled in North America and Europe; countries with exceptional education and socio economic development:

The improving security situation in Somalia have resulted a significant number of the Somali Diaspora to return home with acquired new skills, knowledge, and new perspectives on how to do business and run good government.

The Diaspora involvement in the economy alone is going to become an engine of growth for the economy.

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The Government Role in helping the economy

Tax Collection: To generate the revenue required for security, create jobs, build infrastructure, health and education, the government should concentrate in creating credible and working taxation regime.

As a regional example, Somali government can learn from Ethiopia in ways to improve and apply sound tax collection regime.

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International Aid: The government can play the constructive role in matching international aid to key infrastructure projects like rebuilding roads, bridges, ports, and factories destroyed during the civil war:

International Aid can add economic vitality if employed constructively. As a regional example Rwanda is a country that mastered using international aid to the fullest benefit.

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Corruption: The Somali Ministry of Finance and Planning has shown transparency as of late but to develop economically, the culture of corruption, nepotism and disregard for the rule of law must come to an end from all government and private sectors.

The government must invest technologies that will make difficult for corrupt officials to steal public funds such as electronic systems. Payment fees in sea port, airport, telecommunications and money remittances agencies can all be made electronically to the government directly.

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Diaspora Recognition: The economic impact of the Somali Diaspora cannot be ignored.

Government must engage the Somali Diaspora and implemented policies to recognize their role and contribution to the economy, and give them incentives to invest and reduce costs of doing business.

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Challenges

Lt. Sadik Dogan

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Challenges for Economic Development

1. Certification

- Somalia’s government does not have the capacity to participate in certification schemes to provide authenticity documentation that would enable business to sell globally.

- Ex: 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.

- No proper certificatory regime- EPA ( Economic partnership agreement) between Somalia and Europe.

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2. Trade difficulties

-Somalia is not a member of any regional economic blocs, and it has few formal trade deals with other nations.

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2. Trade difficulties

-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).

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http://trade.ec.europa.eu/doclib/docs/2011/january/tradoc_147385.pdf


3. 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.

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3. Currency reform

- “There were (and still are) several versions of the same currency (Shilling) in circulation concurrently, and most of them are fake currencies,” the bank noted in its Strategic Plan 2013-2018.

- In mid-2013, the International Monetary Fund resumed relations with Somalia after 22 years. For now, it will not provide loans to the country, but it pledged to provide technical assistance and highlighted currency reform as a major priority.

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4. Managing oil deals and revenue

-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

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5. Social engagement

-Need to ensure that economic growth benefits the people, especially as foreign direct investment grows.

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5. Social engagement

-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 relatively well throughout this period despite rampant insecurity and lack of infrastructure.

- With international investment, there are fears that the influx of foreign money will give rise to greater corruption.

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Somalia

Questions?

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Documents

NS4301 Summer Term 2015 Somalia Political Economy