Most of us know Somalia because of the pictures of starving women and kids the most memorable to me being that of a vulture overlooking a child nearing death. Also Somalia is known for the pirates who boost its coast economy. Other than that, most of us are clueless when it comes to Somalia and I must admit that it was not easy writing this peace. I hope this peace will shed some light on the Somali economy and maybe its people.
Historically, the Somalis raise cattle, sheep, and goats, but the camel plays the central role as an indicator of wealth and success. Camels 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.
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 international subsidies particularly Italy and Britain, which funded about 31 percent of the new nation's current budget in the first three years of independence.
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. There was however a boom in livestock export from Hargeysa, cows, goats, and camels were becoming concentrated in northern Somalia, much to the detriment of rangelands, which as we know now are completely eroded.
In the 1970s, Siad Barre, the then president, introduced Scientific Socialism which 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. Two economic trends from this period were noteworthy: increasing debt and the collapse of the small industrial sector.
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. During the 1970s, foreign debt increased faster than export earnings. Many loans, especially from the Soviet Union, were, in effect, written off. 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. 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. The government had to scale down on its projects and cut down on expenditure. They also suffered much devaluation of the shilling and reductions in government personnel.
As a result of the civil war in many areas, the economy deteriorated rapidly. Previously, livestock exports from northern Somalia represented nearly 80 percent of foreign currency earned, but these exports came to a virtual halt when the Saudi Arabian government banned Somali beef. Shortages of most commodities, including food, fuel, medicines, and water, occurred virtually countrywide.
Since the collapse of Siad Barre’s regime in 1991, Somalia has been functioning without a state, gradually descending to anarchy and chaos. This led a large amount of non-state actors seeking power to gain control over Somalia, creating a war economy where war-lords collected taxes to fund the war. However, there has been a gradual shift from the war economy of the 1990’s to a quasi-legitimate trade (import/export, telecommunication, transports) of the beginning of the 2000’s. Service sectors in Somalia are now more developed than in other countries, though Somalia remains one of the poorest countries in Africa. According to the World Bank, the development of such private sector should play a major role in the conflict de-escalation, and should encourage clans to cooperate with each other. The agriculture sector is struggling and as we know, Somalia is hit by what the UN has termed the worst ‘humanitarian crises’.
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