Somalia's Recovery Depends On Its Capacity to Strengthen and Expand the State

1 May 2017

Djibouti — - Somalia is at a political and economic turning point, with a new government facing a serious humanitarian crisis that could hinder the ongoing recovery. While the London Conference for Somalia opens today, the UN Economic Commission for Africa (ECA) is launching a country profile produced by the subregional office for Eastern Africa. For the ECA, Somalia's structural transformation will rely on two main pillars: the blue economy and its youth.

Over recent years, there have been encouraging signs of economic dynamism in parts of the country, particularly in the capital Mogadishu, as well as in the north of the country. This dynamism has been underpinned in recent years by large remittance inflows, worth over an estimated billion US dollars a year. However, the security situation in Somalia is still uncertain, jeopardizing economic stability.

Moreover, the new government still needs to strengthen and expand its institutions, particularly at the federal level. This is essential in order both to ensure domestic resource mobilization and to enable the provision of many basic public services - defence, law and order, education, health and infrastructure. Government revenues are not currently compatible with those aims - with government revenues amounting to just 3% of GDP, Somalia has one of the smallest governments in the world.

A related constraint in this endeavour is the accumulated external debt stock, which currently stands at 5 billion US dollars, and dates back to the 1980s. Andrew Mold, the Acting Director for ECA Subregional Office of Eastern Africa stressed that this issue was undermining access to new sources of international finance for an already fragile state. The cancellation of Somalia external debt would enable Somalia to benefit from new concessional loans and finance the necessary investments for reconstruction.

The economic recovery remains fragile. The estimated GDP growth rate is expected to reach only 2.5% in 2017, due to the severity of the drought that is affecting the population and the livestock. Nearly 6.2 million people are currently in need of humanitarian assistance in Somalia, almost half of the population. The Somali economy is based on agriculture, and mainly livestock which accounts for 40% of GDP.

Despite this extremely difficult context, Somalia's natural resources potential is largely untapped, particularly with regards to its 'blue economy' assets (fisheries, renewable energies, and oil). Foreign investors have already shown their interest, with FDI flows reaching 37% of GDP by 2015, much higher than in neighbouring countries. One example of how the blue economy can be better leveraged is the recent agreement reached with the Emirati company DP World, which plans to invest more than 400 million US dollars to develop the port of Berbera.

Harnessing the potential and energies of Somalia's youth also needs to be a priority: 70% of the population is under the age of 30, and the youth unemployment rate is estimated at 67%. Yet survey evidence suggests that two thirds of Somalia's youth are looking to leave the country. Poor educational opportunities compound the problem. The primary school enrollment ratio is very low, especially in south-central Somalia where it reaches only 22%. ECA's country profile advocates in favour of a greater inclusion of young people in the reconciliation and reconstruction process.

For more information, you can download Somalia country profile:

http://www.uneca.org/sites/default/files/uploaded-documents/CountryProfiles/2017/somalia_cp_eng.pdf

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