Somalia Economic Outlook

  • The country’s economic base continues to be narrow with the majority of people depending on livestock and fisheries.
  • The small tax base and weak public financial management continue to cause serious constraints on the government budget, thus leaving the country almost totally dependent on foreign assistance and remittances.
  • While the main obstacles to commerce, investment, and government revenue collection continue to be a lack of peace and security, the Somali National Army (SNA) has had success in recovering many areas that were under Al-Shabaab’s control.

Somalia’s economy remains fragile, as recovery continues to be hampered by the challenging security environment, poor infrastructure and limited financial resources. The country’s dependence on agriculture and livestock in particular (which is a vital export commodity) reflects its narrow economic base and vulnerability to adverse external and environmental shocks. This also constrains the Federal Government of Somalia’s (FGS) capacity to generate sufficient revenue to support its economic reconstruction and development agenda and stabilise the macroeconomic environment.

The IMF estimated real GDP to be 2.7% in 2015, driven by growth in agriculture, financial services, construction and telecommunications. Assuming gradual progress on the security front and absence of droughts, medium-term annual real GDP growth is projected at about 5%. Nevertheless, growth will remain inadequate to address the widespread poverty in the country. Creating jobs for the youth, providing social services such as education and health, and building sustainable livelihoods continue to be Somalia’s key development challenges.

In a bid to attract investment, the FGS is taking steps in a few strategic areas. These include: i) trying to ease the flow of imports and exports; ii) creating more financial stability and legitimacy in the country; iii) facilitating the continued flow of remittances; and iv) rebuilding and developing basic infrastructure.

In June 2015, the Ministry of Planning and International Co-operation initiated the process of developing a National Development Plan (NDP) that will be the post-2016 planning framework for Somalia. The NDP framework will define the country’s development priorities over a five-year period. The plan will also outline internal and external financing needs and major sources of funding and will guide the allocation of resources and prioritisation of government actions and international development support. The NPD will also serve as the Interim Poverty Reduction Strategy Paper (IPRSP), until a full-fledged official one is developed, and will include a vision and direction for Somalia’s socio-economic development and poverty reduction.

The FGS has also set up a unit within the Prime Minister’s office to develop a framework for public sector capacity building. This process is ongoing and will slowly start to enhance the Federal government capabilities and responsiveness. However, the current tight fiscal space, with extremely limited revenue raising capacity, combined with the challenging security situation, makes it difficult to attract skilled professionals into the public sector, thereby limiting the government’s capacity to deliver services.