Monday, October 04, 2010
By Patrick Gathara
However, despite the absence of a state and its financial, economic and social institutions, the traditional Somali spirit of entrepreneurship remains strong and the private sector resilient and robust.
Indeed, the private sector has managed to grow impressively, particularly in the areas of trade, commerce, transport, remittance services and telecommunications, as well as in the primary sectors, notably in livestock, agriculture and fisheries.
Aggregate trade data reported by partner countries to the IMF reveal that by 2006, Somalia’s imports had almost doubled, reaching a historical record of $461 million in 2004.
In the first six years of the new millennium, exports almost tripled, reaching $266 million in 2004.
This economic activity is powered by remittances from Somalia’s vast diaspora, which, as a proportion of the country’s population, is perhaps the largest in the world.
One in every eight Somalis lives abroad, having either fled the repression of Siad Barre’s military dictatorship or the chaos that followed his overthrow and the collapse of the state.
They constitute 80 per cent of the country’s skilled manpower and send close to $1 billion every year to relatives in the country.
Without these remittances, the country’s private sector would undoubtedly fold. It already faces significant challenges of access to credit and other financial services.
The collapse of the central government in 1991 led to the ultimate collapse of the country’s commercial banking sector, which had previously been plagued by corruption and mismanagement.
There are currently no formal financial institutions operating in Somalia nor any fully functioning formal financial sector regulatory bodies, making it impossible to encourage and harness domestic savings.
Further, the country is also locked out of international capital markets. Somalia’s relations with international creditors were frozen in late 1980s due to the economic mismanagement of the Barre regime.
The remittances also dwarf any international aid the country receives as Overseas Development Assistance.
Somalia is one of the poorest countries in the world with a per capita income less than half the regional average and, in 2003, it was estimated that nearly three-quarters of the population lived on less than two dollars a day.
Per-capita aid to Somalia, had reached $41 in 2003, totaling $272 million. Remittances, at roughly four times that number, clearly show that the major inflow of “aid” comes from Somalis themselves.
Most beneficiaries live in urban areas, with the remittances constituting about 40 per cent of the income of urban households.
Less than 10 per cent of transactions are destined for rural areas. According to a paper prepared for the UN conference on Somalia held in Istanbul in May this year, individual transfers are usually in small amounts averaging $132, sent regularly to cover basic family needs.
In fact, household consumption, including expenditure on education and health, accounts for between half and two-thirds of remittance spending.
However, studies in Somaliland show that remittances are increasingly being used to fund new organisations and development projects, and such transactions usually involve larger sums.
Whether invested or consumed, remittances have important macroeconomic impacts, generating positive multiplier effects while stimulating various sectors of the economy.
Source: DailyNation