November 2005

Somalia Country Economic Report

From Resilience Towards Recovery and Development

Areas covered by the report

Public Sector Institutions and Management Sectoral Performance and Environmental Issues Macroeconomic Management and Trade Private Sector Development and Legal Framework Education and Health

Implications for JNA

The Country Economic Report (CER)

Provides an overview of the economic and social situation in Somalia

Identifies key policy challenges Suggests an approach for strengthening the

delivery of public services- private sector

-communities

- governments.

The Social and Economic Costs of the Conflict

Since 1990, civil conflict, continuing insecurity and absence of government in many parts of the country

Access to basic services worsened welfare and poverty compared to pre-civil war times

Poor infrastructure and weak governance hamstrung the economy’s potential

increased remittances have partially cushioned living standards a from the sharp drop in per capita output.

Vibrant private sector and emergence of community based delivery systems.

Macroeconomic Management and TradeMain Findings: The economy is dollarised for all large business and personal

transactions Open Economy. Exports in 2004 a record high of about $265

million or about 19% of nominal GNP. Fiscal Capacity in the northern regional states weak- low revenue

collection, expenditures mostly for security and general administration.

By end-2004, Somalia’s total external debt is estimated at $3.2 billion.

Implications: Currency reform- low seignorage, but inflation risks for the poor. Low, ad-valorem and non-discriminatory taxes linked to service

provision, debt service capacity negligible.

Public Sector Institutions and Management Main Findings: The political and economic challenges facing the TFG and

the regional and local authorities in Somalia are formidable.

There is a strong regional diversity of security and administrative conditions.

Implications: Building accountable and capable Somali state institutions. For those areas where the public sector will play a role,

existing systems of planning, budgeting, financial controls, and reporting need to be urgently strengthened and made transparent to ensure responsiveness to the population needs and accountability of state structures and public servants to taxpayers and donors.

Agricultural Performance and the Environment Main Findings: In the south-central regions, livestock exports and crop production in

both the rain-fed and the irrigated areas have suffered in recent years from poor security conditions. In the northern regions poor veterinary services hinder pastoralists

Environmental degradation in fragile areas High Potential fisheries

Implications: Address insecurity especially in ports and tackle environmental

conflicts Provision by the public sector of animal and plant health and

certification services is an urgent priority Opportunities for marine exports

Private Sector Development and Legal Framework

Main Findings: Civil strife had a devastating effect on the small industrial

structure in both north-west and southern Somalia. In all regions, the private sector is providing sometimes better

and more efficient services than the state before the civil war. There are, however, critical gaps in private sector provision,

where absence of an effective state role is felt more acutely.

Implications:

Enable the private and NGO sectors to expand production of private and public goods and services, through a market and property rights friendly regulatory and legal framework.

Rebuild a lean federal court system and encourage the establishment of a modern, formal arbitration system.

Education and Health IMain Findings:

Primary school GER around 19.9% c.f. (pre-war rate of 8.2 %). Secondary enrollment 1.1% in 2001, the lowest in the world

Girls have even more limited access to education, Schools are inadequately governed, supplied, and equipped, but

local communities are active in education management all across Somalia.

The under-five mortality rate is estimated at 224 per 1,000 live births ( 172 average for Sub-Saharan Africa). Infant mortality 132 in 1999 (SSA 107). Maternal mortality the highest in all of Africa. Somalia among the worst five countries with respect to tuberculosis prevalence, more than a four fold increase since 1995.

Rising dependency on khat a growing public health and social problem .

Education and Health IIImplications: make the best possible use of very constrained public

resources, to improve quality of service delivery, and to expand access.

Strategic priorities are training of teachers and health workers, correcting the gender bias in education, prevention of infectious diseases like tuberculosis, rehabilitating uneducated militia fighters, ensuring access by the poor to primary services, leveraging as much as possible community, NGO, and private sector providers.

Secondary education, including standardization of curricula, tertiary education and curative health services can be left in the hands of community and private providers

Implications for JNA

Stimulate private sector through “market -friendly” framework

Support local and community initiatives for service delivery

Recognise opportunities for reconciliation and risks of conflict.

Acknowledge mistrust many Somalis may harbor, by rebuilding state institutions with an exceptionally strong accountability framework.