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Economy of Somalia

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Through Developing country, Gross domestic product and Nomad

Lab · Class 11Nomadic Medieval

Somalia's economy consists of both traditional and modern production, with a gradual shift to more modern industrial techniques. According to the Central Bank of Somalia, about 80% of the population are nomadic or semi-nomadic pastoralists, who keep goats, sheep, camels and cattle. The nomads also gather resins and gums to supplement their income.

In 2025 Somalia ranked 123rd out of 123 countries that measure hunger. Their global hunger index of 42.6 is a rating that is considered "alarming". It is estimated that close to 6 million people, or one-third of Somalia’s population and 1.9 million children face severe food shortages and/or severe malnutrition.

History

Civilian government 1960-1969

During the 1960s, the economy of the Somali Republic was characterized by limited economic development, growing concerns over corruption and public financial management. observers and later historians described the civilian administration as increasingly affected by corruption, alleging that public funds were diverted for political patronage and electoral purposes while foreign aid projects were frequently mismanaged. By some accounts, the administration spent nearly five times the annual agriculture budget on Land Rovers to rig elections, a level of graft compared to New York's 19th-century Tweed Ring and Capone.

One report referred the Somali republic as a "graveyard of aid schemes," and the Los Angeles Times observed that the country remained as impoverished as it had been at independence in 1960. Ozay Mehmet, an economist at the London School of Economics, noted that Somali living standards had declined over the course of the 1960s, leaving the population worse off by 1969 than at independence in 1960.

“Indeed, evidence suggests that living standards, on average, were lower at the close of the decade than at its beginning. It is therefore apt to inquire whether foreign aid to Somalia played any useful role or what sort of contribution it made.”

President Abdirashid Ali Shermarke publicly acknowledged the problem of corruption, attributing the country's recurring drought-related crises in part to the corruption of members of parliament. General Siad Barre, then commander of the SNA, likewise criticized the civilian government's reliance on foreign aid, arguing that it was incompatible with Somalia's objective of achieving economic self-reliance

''We cannot go hat in hand in search of funds because that will be humiliating and contrary to the principle of self-reliance to which the nation is committed. . . . The only sensible solution to the deficit problem is to tighten our belts and cut down on luxuries.''

In 1968, Prime Minister Mohamed Haji Ibrahim Egal stated in an interview with The New York Times that Somalia's inability to respond effectively to the ongoing drought was due to an empty state treasury. Contemporary accounts, however, attributed the depletion of government finances largely to Egal's own use of state funds to secure parliamentary support ahead of the 1969 elections.

Following the 1969 revolution, Egal was accused of embezzling approximately 3 million Somali shillings estimated at around US$26 million in present-day value. and of distributing embezzled government funds to American nationals, including John Bainbridge, who was arrested and expelled from Somalia. At the time of the coup, Egal was in the United States, where it was reported that he had spent state funds gambling at roulette tables in Las Vegas.

Siad Barre era

Stanford-trained economist Vali Jamal estimated Somalia's GDP per capita at US$406 in 1978 (approximately US$2,000 in present-day terms), arguing that official statistics had substantially underestimated agricultural production. By his estimate, Somalia's per capita GDP exceeded that of several African countries, including Egypt, Ghana, Sudan, Tanzania, and Kenya, as well as most other states in East Africa.

This estimate was reinforced by Somalia's first official national accounts, compiled in 1979 through three independent studies conducted jointly with the Somali Central Statistical Department, two by the UN Economic Commission for Africa and one by the World Bank (IBRD). The IBRD calculated a figure of US$342, a figure that put Somalia well out of the league of the least developed countries entirely. The report further estimated that 17 percent of the population lived below the poverty threshold, describing this as comparatively low by African standards and consistent with the relative absence of urban shanty settlements and widespread visible malnutrition in Somalia at the time.

Barre's economic record was frequently linked to broader assessments of his government's low levels of corruption. Although many scholars of military rule in Africa argued that military regimes were often as corrupt as the civilian administrations they replaced, Somalia under Barre was frequently identified as an exception. One observed that the 1969 coup had brought to power "almost puritanical officers" who sharply reduced corruption, while a 1975 investigative hearing before a U.S. Senate subcommittee likewise identified Somalia as one of the least corrupt countries in Africa. Fiscal discipline contrasted sharply with the preceding civilian administration, where financial mismanagement was reported to be so pervasive that the government was unable to produce a complete fiscal report because of administrative irregularities. Whereas the national budget had recorded continuous deficits since independence, Barre's government achieved Somalia's first budget surplus in 1971, with the surplus subsequently allocated to development projects.

Somalia's socialist government undertook a marked expansion of the state’s capacity to collect revenue, an achievement widely seen as symbolising a break from the administrative weakness of the civilian era. Whereas the previous government had struggled to enforce taxation even in urban centers. The post 1969 government extended tax collection into rural and nomadic bush areas, reaching rural communities in the bush that had largely fallen outside the state’s fiscal reach.This institutional strengthening corresponded in a rise in tax revenue. From 1970 onward, tax revenue doubled by 1975.

Economic liberalisation

In 1972, the government constructed a commercial complex housing over 100 shops as part of efforts to promote free trade within the country. By 1980, all price controls had been dismantled, and Somalia had completed its transition to a free market economy. In a 1976 speech addressing private investment, Siad Barre stated the following:

"We have no new nationalizations in view. Our goal was, and it remains, to nationalize the firms of those who exploit the Somali people. But we have never had the intention of attacking private property as such Private property has been nationalized only when it constituted an element of exploitation. No one here, for example, has ever thought about nationalizing agriculture or industry. On the contrary, we encourage private enterprise in that area. In any case, there is no question of nationalizing land, because we have enough arable land for everyone who needs any''

The response of the Somali economy to the reform liberalisation was described as impressive. The dramatic increase in grain production following the liberalisation of cereals marketing helped Somalia achieve self-sufficiency in maize and sorghum, while farmer incomes rose in relative terms, measured against the price of grain versus consumer goods. The U.S. Department of Commerce noted that private sector activity “exploded” during this period: new shops opened rapidly across cities and towns, minibus services multiplied, and the number of drugstores grew from around 20 to several hundred within a few years, while consumer goods became more widely available in greater variety and quantity throughout the country.

Agriculture

In the early 1970s, the CIA issued a special assessment describing the economic challenges facing Somalia's new government as a "Herculean task", citing the country's arid environment, limited natural resources, and largely undeveloped economy, in which most of its 2.8 million inhabitants depended on nomadic pastoralism and subsistence agriculture. The report attributed these difficulties to the civilian government's development programs, characterising them as inefficiently administered and having achieved little beyond giving Somalia a reputation for squandering foreign aid.

Barre made reducing the economic disparity between northern and southern Somalia a central objective of his agricultural policy, alongside programs to combat overgrazing and increase domestic food production. In 1973, government ministers were dispatched to Gabiley to promote improved agricultural practices among local communities. Over the following decade, cereal production increased substantially: sorghum output rose by 87 percent, from an average of 139,000 tonnes in the 1970s to 260,000 tonnes by 1985, while maize production increased by 162 percent, from 107,000 to 280,000 tonnes, making Somalia largely self-sufficient in both crops. A UNICEF report found that absolute poverty and malnutrition in Somalia were lower than in most countries in sub-Saharan Africa and reported no evidence of long-term deterioration in either indicator.

Civil war and state failure

According to the World Bank, within two years of the outbreak of civil war in 1988, Somali state institutions collapsed and "most of the economic and social infrastructure and assets were destroyed". In 2003, the World Bank reported that despite the absence of a state and its institutions, the Somali private sector experienced impressive growth, but that "most of these sectors are now becoming either stagnant or their growth is hindered due to the lack of investment, trained manpower and the absence of a relevant legal and regulatory framework to enforce rules and regulations, common standards and quality control". The report noted difficulties encouraging and making use of domestic savings for investment, due to the lack of formal financial services and regulatory agencies. The lack of state institutions, the Bank argued, resulted in the prevention of access to international capital markets.

In an article published in 2007, libertarian economist Peter T. Leeson argued that the Somali state was "a predatory state", and that its collapse had improved the economic welfare of its citizens, with 14 out of 18 key development indicators being more positive in the period 2000-2005 than in 1985–1990. Similarly, economists Benjamin Powell, Ryan Ford and Alex Nowrasteh argued that Somalia's economic performance, relative to other African states, has improved during the period of statelessness. Ersun Kurtulus stated that Leeson and Powell, Ford and Nowrasteh's articles provide "the most unequivocal evidence to indicate that Somalia has been faring far better under anarchy than it did under Barre's regime". Kurtulus argued that these authors may provide a valid explanation of the situation in Somalia, but that "the argument appears to be derived from a hypothesis which is rooted in a liberal conceptualisation of statehood rather than in a quantitative analysis which establishes a negative correlation between indicators of state predation and those of economic and social welfare". Kurtulus suggests that the collapse of a repressive state may improve personal and civil liberties, but that such an account "overemphasises endogenous factors that are vested in the domestic arena, while neglecting the exogenous factors that operate at the regional and international level".

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