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Potential pathways to Somalia's economic recovery

Wednesday, May 1, 2013
by Cleophus Tres Thomas III

Somalia's first permanent government in 22 years faces significant obstacles in getting the nation's economy back on track.

However, in comparison to the corruption rife in previous administrations, President Hassan Sheikh Mohamud's government has so far garnered positive reviews inside and outside the country, and expectations are high that his administration is in a position to jumpstart the economy.

If the government pursues innovative solutions in the telecommunications, agriculture and fishing industries, and reduces risks associated with tapping the country's natural resources, Somalia's economy could see a well-needed lift that would also be a boost for peace and development.

At present, the central government in Mogadishu collects approximately $84 million per year in state revenues sources, such as taxes on seaports and airports. It therefore must rely on direct support from foreign governments as well as local and international non-governmental organisations, and on the approximately $1.6 billion each year in remittances, according to the United Nations. Although the International Monetary Fund recognised the Somali government in April, large-scale loans are not possible until its $352 million in debt is re-financed or cleared.

Mobile technology can help banking woes

The Central Bank of Somalia, which re-opened in 2009, is significantly undercapitalised and lacks the capacity to control inflation and govern overall monetary policy. As a result, exchange rates and commodity prices are influenced heavily by businesses, currency, traders and the unpredictable influx of US dollars.
However, investing in mobile banking and other technologies in Somalia's booming telecommunications industry could help expand financial services in the absence of commercial banks and reduce the sway of currency traders. Increasing the amount of financial transactions in which physical money is not exchanged will give traders less leverage to manipulate exchange rates for Somali shillings and US dollars.

According to a 2012 report by the World Bank, 34% of Somalis use mobile banking for personal and business transactions, so there is already a good customer base from which to grow.

Increasing investment in agriculture

Livestock production -- which provides food and income for 60% of the country according to the United States Agency for International Development (USAID) -- continues to thrive, despite repeated droughts. Thousands of animals raised in various parts of Somalia are exported through ports in Berbera, Bosaso and Mogadishu.

Agricultural entrepreneurs also are seeing new opportunities. In December 2012, Somali businessmen founded banana export company Fruit Some to provide export opportunities for the country's once-famous bananas. Nonetheless, low quantity production, drought, famine, ongoing insecurity and inefficient supply chain networks have hindered crop exports.

To expand the market for Somalia's food growers, influential groups like the Eastern African Economic Chambers of Commerce and the Somali Economic Forum could work with the Somali government to identify short term ways to improve supply chains through building roads and dismantling illegal checkpoints, and through identifying untapped food export markets, such as Kenya and Ethiopia.

To make more land available for agriculture, the Somali government stands to benefit from scaling down charcoal production, which can be profitable but destroys agricultural lands, increases negative impacts of flooding and erosion, and funds the activities of violent groups.

Illegal fishing stymies economic growth

Fishing is another industry that has long flourished in Somalia. But Somali fishermen say that outdated equipment, illegal fishing and waste dumping remain major obstacles to taking advantage of thedecline in piracy and improvement in security.

To counteract this, the Somali government could introduce legislation that is in compliance with international law to guarantee Somalia's rights to regulate maritime activity in its exclusive economic zone. The government could also mandate that foreign and local fishing companies pay appropriate taxes.

Local and foreign companies caught dumping waste should pay appropriate fines. The money collected could be reinvested in improvements for making the local fishing industry more competitive, such as making the fishing supply chain more efficient to help increase exports.

The Somali government can also continue to work with international counter-piracy partners, such as the European Union Naval Force (EUNAVFOR), to more aggressively pursue people fishing without a license. Counter-piracy forces should continue to train and equip Somali naval and coast guard forces to perform these duties, giving the Somali government legal, financial and strategic tools to revamp the fishing industry.

Oil and natural gas prospecting

Oil and natural gas exploration has begun in the Somaliland and Puntland regions, and off Somalia's southern coast, and many investors and Somali politicians say there is a possibility of finding commercial quantities that could provide financial autonomy in those regions.

However, as in other resource-rich countries, conflict over distribution of wealth has escalated in parts of Somalia. To ensure that natural resource exploration does not add another layer to conflict in Somalia, energy and natural resource officials should give priority to engaging in talks with local communities. Such talks should focus on the potential impacts of natural resource discoveries and frameworks for equitable distribution of potential profits.

Tensions could also escalate between Somalia and Kenya, as Kenya recently identified eight new offshore exploration blocks available for licensing -- all but one of which is located in a contested border area in the Indian Ocean. The United Nations should mediate a potential crisis between Somalia and Kenya over these borders in order to reduce the risk that a discovery triggers tensions between the two countries.
Investing in the future

The new Somali government and its international partners continue to battle al-Shabaab in areas still under the militant group's control, and are working to re-build institutions after decades without a permanent federal administration.

Innovative approaches to traditionally thriving industries, such as telecommunications, agriculture and fishing -- and potential new sources of income such as oil -- offer an opportunity to build upon the economic momentum that many Somalis have seen in the past two years.


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