In 1970s, Somalia was called ‘Land of Paradise’ by Italian tourists and Somalia’s economy was at its best stage where many factories such as those producing sugar, fish, meat, edible oil and milk were operating. Mills processing most of the crops such as sorghum were also operational. Bananas and hide skins were being exported to European countries while livestock as well as frankincense and myrrh went to the Arab countries.
The Somali currency was strong and pegged against the US dollar at SOS6.3 for many years. The Somali currency was based on gold as Somalia did not detach from the gold currency standard when the rest of the world did in 1970 in the Bretton Wood system until the collapse of the Somali government in 1991.
As a result of the civil war affecting many areas in Somalia, the economy deteriorated rapidly between 1988 and 1990, resulting in the country’s collapse in 1991. After a long civil unrest in Somalia and many reconciliation conferences to establish central authority, an international community led by the US recognized the Somali federal government in 2012.
Since then, institutional progress has been made, and a provisional constitution and federal member states were established. In the north, in 1991, a state called Somaliland (still unrecognized by the international community) proclaimed independence from the rest of Somalia.
Review of 2021
In Somalia, progress has been made in reestablishing civil and government institutions including the Central Bank of Somalia, the parliament and the Senate (Upper House), with the help of many countries, mainly the US, the UK and Turkey. Many government agencies are currently functioning.
The IMF and the World Bank are helping to reform government financing programs which led to removing Somalia’s arrears of debt held by the IMF, Paris Club and other countries such as Saudi Arabia and Algeria to pave the way for IMF technical assistance and infrastructure development including in health and education.
Somalia has an active private sector that is vibrant. Almost all functioning economic industries are privately owned across sectors from airlines, telecoms, banks and import and export companies to farms and the petroleum industry. The banking sector is growing rapidly with six main banks functioning at an 8% market penetration. Additional foreign banks have been licensed by the Central Bank of Somalia. The growing financial industry is the engine fueling the economic growth of the country as the World Bank has mentioned several times.
Banks are operating in acceptable international standards and some are audited by the ‘Big Four’ firms like Deloitte. Banks are diversifying their portfolios and one of them is preparing to issue Sukuk instruments to finance the improvement of infrastructure and vital economic industries. The telecoms industry has more than a 70% market penetration and more than 90% of transactions are settled in cashless electronic methods.
The real estate sector is another business sector that is currently booming. Mogadishu city land in prime areas (20×12 meters) costs more than US$2 million. Projection in real estate shows that in the next five years, more than 50,000 units will be established in Mogadishu alone, according to one construction company’s forecast data. Economic sectors like farming are being revived and new roads are being paved in major economic cities of the country.
Preview of 2022
The international community recognizes the strategic location of Somalia as the country lies along the trade routes of the Red Sea and the Indian Ocean where thousands of ships move different ways. Due to this fact, DP World, the investor and manager of many ports around the world, and the UK’s CDC Group have started investing US$1.72 billion in a few countries in Africa including Berbera Port in North Somalia (Somaliland).
At present, there are major investment changes in Berbera Port which have brought state-of-the-art facilities that would serve two million containers to the neighboring country of Ethiopia. The port will have other infrastructure including a new container depot and business parks including free zone areas in the near future.
Somalia is continuing to rebuild major economic sectors that are vital for economic development and attract foreign direct investment. Furthermore, governance and economic institutions including research centers are coming to the scene.
Somalia also has several other advantages including fast and growing urbanization; increasing use of digital services such as mobiles, android applications and e-commerce; a young population that is increasingly graduating from local universities; and current investment in vital sectors such as energy, education, health, ports and roads which will create more economic opportunities and employment.
Another essential sector is manufacturing that can feed neighboring Ethiopia which has a population of more than 100 million. Goods manufactured in Somalia could be tax-free if sent to Ethiopia. In a nutshell, the existing opportunities are unlimited and companies that move now can reap the benefits as first movers.
Hassan Ahmed Yusuf is CEO of HAY Consultancy. He can be contacted at [email protected]