Somali Economy
Somalia is endowed with entrepreneurs who have been able to flourish in the conflict-ridden country, and the Somali diaspora remains committed to investing in economic and social reconstruction. Somalia also has the potential to be a regional economic hub due to its strategic geographic location and having the longest coastline in Africa. The country’s huge trade deficit is an opportunity for Somalis to produce for domestic and international markets and to reduce dependence on imports.
The country is also endowed with huge agricultural and aquaculture production and processing potential. Over 70% of Somalia’s population is under age 30 and needs to be well managed to become a potential youth dividend. GDP in Somalia is expected to be 8.00 USD Billion by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, theSomalia GDP is projected to trend around 10.00 USD Billion in 2020, according to our econometric models
Key opportunities include a vibrant private sector; a diaspora willing to invest in the country; regional integration; import substitution and export promotion; nascent agricultural, agribusiness, and fishing industries; and a young population.
The civil war also had a devastating effect on institutions and governance capacity. The public financial management system still faces challenges of transparency, ability, and legitimacy, which has delayed the startup and implementation of projects. Somalia remains insecure due to lack of effective law enforcement mechanisms; high unemployment, especially among young people; and incursions by Al-Shabaab and ISIS insurgents, among others.
Key challenges include infrastructure constraints, weak state institutions and capacity, weak public financial management systems, continued insecurity, limited resilience to environmental extremes, and large arrears to international financial institutions. Somalia lacks the infrastructure to provide basic services, including security, health, water, education, energy, and transport because so much infrastructure has been damaged and destroyed by conflict
Downside risks include slower agricultural growth due to May 2018 floods, continuing insecurity, and adverse weather shocks to rain-fed agriculture and livestock trade. According to the World Bank, Somalia’s mobile money sector portends serious macro-economic effects in the event of disruptions. Real GDP growth was an estimated 2.9% in 2018. Supply-side contributors were mainly agriculture, livestock, and financial and telecommunications services. Demand-side contributors were largely government and private consumption, which together constituted about 83% of GDP.
The current account deficit hurt growth as it widened to an estimated 7.2% in 2018, driven by rising consumer and capital goods imports, particularly food imports due to persistent droughts; higher oil prices; and Saudi Arabia’s. Real GDP growth is projected to be 3.5% in 2019 and 2020. The IMF, however, urged the government to speed up financial sector reforms with a particular focus on the organizational and governance structure of the Central Bank of Somalia. A new central bank governor is yet to be appointed four months after the term of the former governor expired. The Washington based lender has also called for regulation of the mobile money transfer sector echoing a similar call by the World Bank in its second economic update last year
Growth has rebounded, inflation has slowed, and the trade deficit has narrowed. “For 2018, real GDP growth is projected at 3.1 percent and end-year inflation at 3.5 percent,” the IMF said in its Staff Monitored Program review Tuesday. Data through November 2018 show that domestic revenue reached $161 million (31 percent higher than the same period in 2017), and the overall cash fiscal position was in surplus by $8 million, the review noted.
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