The Economy of Somalia

1. Introduction

The Nobel Prize Winner in Economics, Prof. Paul A. Samuelson gave a useful definition of what economics is really about, in his best-selling university textbook, "Economics: An Introductory Analysis", in 16 Editions over 50 years, from 1948 to 1998. It was translated into many languages and influenced more than one generation of young economists around the World. His definition was:

“Economics is the study of how men and society end up choosing, with or without money, to

»  employ scarce productive resources which could have alternative uses, to produce various commodities and 

»  distribute them for consumption, now or in the future, among various people and groups in society.”

More simply, this means making the choices on how to

As an illustrative application, if we want to increase the standard-of-living in a country, we need to allocate available resources and increase the productivity of these resources in order to produce more goods and services of better quality and value. Then we may or may not consider how to re-allocate these goods among the citizens, thereby assuring that the standard-of-living for most citizens and not just a few will be improved.

As a negative example, merely increasing the wages of one group of citizens does not increase the average standard of living for a country, because it does not increase the total output of goods and services available to all citizens. Rather, it reallocates the distribution of these same goods and services, giving more to the group whose wages increase at the expense of the groups whose wages are not increased.

The Somali people are not happy with their current average standard-of-living or even their share as individuals in the total output produced by their economy. If they set a political goal of quickly achieving a higher standard-of-living for most Somalis, such as measured by an increased yearly income available for buying food, clothing, shelter, medical treatment, education, recreation, etc.; then the Somali people must increase the total productive output of their economy, sometimes measured as GNP ("Gross National Product"). In the very short-term, they may ask for and receive some foreign aid, to subsidize the difference between

However, they can not depend indefinitely upon other people in other countries working hard to earn money which they then donate to the Somalis.

Since the end of World War II, Western Europe and North America in particular have donated large amounts of foreign aid to under-developed and developing countries -- often with very disappointing results. In most cases, this aid has succeeded in steadily increasing the production of goods and services, i.e. increasing  the GNP in these countries. But, a substantial part of this aid has been in the form of medical and health services which provide quicker humanitarian results in the form of substantially reducing infant mortality and increasing life expectancy. The obvious result has been that populations which had been living in equilibrium with their harsh environments suddenly experienced a rapid growth in the size of these populations. The total amount of goods and services generated was increasing slowly, but the number of people competing for these goods and services was increasing even faster. Dividing the whole GNP by the increasing number of citizens gives the result that the average standard-of-living for citizens has gone down in many of these "developing" countries -- despite growth in their GNP as a result of substantial aid to these countries.

Despite the many Somali lives lost to starvation and genocide by the Socialist/Communist Dictatorship and the anarchy following the collapse of the Dictatorship, the population of Somalis who claim Somalia as their home has increased by a factor of about 3 times since independence in 1960 to today. Humanitarian aid has been largely successful during these difficult times of political instability in maintaining substantially lower infant mortality rates and longer life expectancies than in 1960. The resulting rapid growth in the size of the population has occurred during a period of time when growth in production of goods and services, i.e. GNP, has not kept pace with the growth in the size of the population -- leaving the Somalis on an average more destitute today than they were in 1960.

The 2001 "Human Development Report on Somalia" (English Version or Somali Version) from the UNDP shows an interesting comparison between the current status of the Human Development Indicators for 2001 in Somalia and neighboring countries (Eritrea and Uganda are not included here from their table, only because they are not direct neighbors):

For Life Expectancy, Djibouti & Kenya did better than Ethiopia and Somalia, whereby it may be relevant that Djibouti & Kenya have not experienced recent war, as have both Ethiopia and Somalia. Somalia outperforms Ethiopia substantially, by 3.6 years.

For both Infant Mortality and Under 5 Mortality rates, Somalia is the worst performer, perhaps indicating poorer medical support in the anarchy of the past decade, whereby Kenya appears to have much better medical support than the other 3 countries.

For the Maternal Mortality Rate, both Ethiopia and Somalia have rates approximately 2.5 times higher than Kenya, which is probably a consequence of the much higher levels of Female Genital Mutilation in Somalia (nearly 100%) and Ethiopia (less than 100%) versus Kenya with a much lower rate.

For Adult Literacy, Kenya ranks highest, probably due to a generally better educational system and the lack of war closing down schools for extended periods of time. Only in Somalia have schools been largely closed down for more than the last dozen years, which has lowered the Adult Literacy rate from over 60% 15 years ago to only 17.1% today, particularly when more than 50% of the population are under 18 years of age.

The results in the economic area of GDP per Capita are surprising. Somalia ranks almost as high as Kenya and substantially higher than Ethiopia, despite the "anarchy" and lack of a functional government over the past decade! What does this imply?

As preliminary guiding conclusions as we start to analyze the economy of Somalia,

2. Retaining Nomadism With a Growing Population

Most Somalis are proud of their nomadic history and tradition. They would like to retain the nomadic role in the Somali economy as far as possible. However, this poses some difficult questions for the Somali people to face today. Only the Somali people themselves can answer these questions and set appropriate goals.

John A. Hunt described the economic necessities for the nomadic way of life in detail in his book, "A General Survey of the Somaliland Protectorate 1944 - 1950", published in 1951. This includes data on the pattern of scattered rainfall in Somaliland, the need for the nomads to move to water holes with permanent water during dry periods, then to scout for where rain has fallen during the rainy seasons, and move their flocks of animals to those areas were there is fresh green grass. At that time, about 90% of all Somalis living in the British Protectorate were nomads. With an estimated total population of 640,000 in 1951 and 90% as nomads, this would amount to about 576,000 nomads in Somaliland. This was a stable population, not appreciably growing in size, living in equilibrium with nature.

Later, in 1954, Great Britain ceded an approximately 24-mile wide strip of rich grazing lands along the border between the British Protectorate and Ethiopia to Ethiopia. (This was in violation of the treaties which Great Britain signed in the 1890's with the Somali leaders to protect their sovereignty.) Today, there are approximately 3 million Somalis living in the Republic of Somaliland, which is smaller than the original British Protectorate. Even if only 1/2 of these Somalilanders are nomads today, i.e. 1.5 million nomads, this is approximately 3 times as many nomads on a reduced geographical area. One result has been substantial overgrazing and ecological damage to these rangelands, degrading their capability for supporting so many nomads.

With the vagaries of rainfall, some years have substantially more rainfall than the average and some years have substantially less rainfall than the average. When there is a rough ecological balance or equilibrium between the number of nomads and a given geographical area, the years with substantially less rainfall than average are called "droughts", causing a substantial number of livestock to die and a variety of hardships for the nomads. However, when too many nomads are living in the same area, and the vegetation is already damaged as a result, even a year with "average" rainfall becomes a "drought" year. As this imbalance continues, more than half of the years become "drought" years with large numbers of livestock dying and much hardship for the nomads.

This led to the ironical situation in 1992, as many Somalis were dying of starvation in Southern Somalia, whereby there was a large overabundance of livestock being held by the nomads in Somaliland who wanted to sell their animals, because the recent fighting in the war of liberation had blocked their normal exports of surplus livestock. (There were also large stocks of grain stored in Southern Somalia at that time, which were blocked from being released to the market there.) Instead of using cash to buy the surplus meat in Somaliland and surplus grain in Southern Somalia and redistributing it, the International Community insisted upon exporting their own surplus agricultural foodstuffs to feed the starving Somalis in Southern Somalia (while also benefiting their own farmers back home). By giving away surplus food in Southern Somalia, the International Community depressed the local market prices for foodstuffs so low in Southern Somalia that the market prices were far below the costs of production for local farmers, discouraging them from planting new crops.

Remembering the definition of "economics" by Samuelson, if we want to increase the standard-of-living for Somali nomads on a sustained basis over time, we would need to increase their productivity. This means that each nomadic family would need to roughly double the size of the herd of livestock that they maintain, such as by using new improved technologies, in order to double their standard-of-living. Since it is the number of livestock which is limited by the capacity of these grazing lands, doubling the number of livestock maintained by each family means that it would be necessary to halve the number of families engaged in the nomadic lifestyle -- not triple this number, as has actually occurred since 1960.

This is a tough dilemma for the Somali people to face. They want an increasing number from their growing population to engage in their traditional nomadic way of life, while at the same time wanting the standard-of-living for these nomads to increase. But, this appears to be technically impossible.

In the next sections, we will briefly examine

3. Increasing the Capacity of Rangelands for Supporting More Livestock

Technical possibilities for increasing the capacity of rangelands include:

Even if such approaches may be technically feasible, they do not integrate well with the nomadic lifestyle. The reason is that they require investments by the nomads in specific tracts of land, rather than to retain the traditional freedom to move to the tracts of land where rain has actually fallen.

Increased use of irrigation in a semi-arid region, such as the rangelands of Somalia, is also problematic. Only one river in Somalia, the Juba, flows from the highlands of Ethiopia all of the way into the Indian Ocean. Most of the rainfall in Somalia and across the border with Ethiopia only flows to lower elevations, where it evaporates and seeps into the ground. Therefore, there is currently a natural equilibrium as to how high the water table of underground water is across this territory. Pumping more water out of wells for irrigation purposes will inevitably steadily lower this water table.

A few nomads and farmers can easily pump a substantial amount of water from the underground water, without significantly lowering the equilibrium water table. As pilot projects, these projects may be very successful and encourage widespread drilling and irrigation. However, as the number of projects increases and the quantity of water pumped increases substantially, much of this water will be lost to evaporation and not be replaced. The results will include the water table sinking ever deeper into the earth and having increasing concentrations of salt and minerals dissolved in it. The first reaction will be to drill the wells deeper, while continuing to increase the number of projects of this type. However, it will ultimately end in a man-made catastrophe whereby the decreasing supply and quality of water will no longer support the increasing number of people depending upon it.

There appears to be an acute need for detailed modern hydrological surveys to estimate realistically how much water can be safely pumped out of the ground in different areas of these rangelands. This would allow a reasonable amount of drilling and irrigation, that could be sustained over many years without risk of a serious catastrophe.

This situation illustrates one of the dangers of a completely laissez-faire economy -- as now exists in Somalia without a central government regulating business activities in any way. It lies in the interests of each individual Somali, to pump and exploit as much water as they possibly can, but this would eventually lead to a catastrophe which would hurt each of these entrepreneurs tremendously. For this reason, it is necessary to reach a democratic consensus among all Somalis for some form of governance to regulate and limit the use of their valuable resource of underground water.

4. Cross-Training and Re-locating Many Nomads for other Occupations

4.1 Farming with Irrigation

Some experts have recommended settling a large fraction of the Somali nomads as farmers. They argue that this could be done both

However, these proposals carry the same risks as mentioned above for partial irrigation of the rangelands of the nomads. Both the water flowing in these 2 rivers and the underground water flowing toward the Indian Ocean are limited supplies and sustained overuse of either can quickly lead to a catastrophe.

If it appears to be profitable for Somalis in Somalia to pump more water from the 2 rivers, it will also appear to be profitable for Somalis and non-Somalis within Ethiopia to do the same there. If enough water is diverted for use in irrigation within Ethiopia, these 2 rivers would eventually "dry up" before they reach the border between Somalia and Ethiopia. This could lead to a steady migration of irrigated farming activities, with farmers deserting irrigated fields far downstream with no more water, to move further upstream where there is still more water available. With a political boundary in the middle of these rivers, this phenomenon could lead to increasing conflict between Somalia and Ethiopia.

At the other end, we have already seen the deep concerns of the Egyptian Government, worrying that a strong economy in Ethiopia could lead to increased use of irrigation in Ethiopia, thereby drying up the Blue Nile. If the same were to happen with the White Nile, Egypt would be reduced to an arid desert, with no water for irrigation for producing food for their own people. Where could the 70 million Egyptian people emigrate to, if they lost their vital source of water?

Again, small pilot projects in this direction could be extremely successful, before the dangers of large-scale operations would be recognized. Therefore, modern state-of-the-art hydrological studies should be conducted first, before planning to implement a transformation of the Somali nomads to Somali farmers, who would then be dependent upon larger supplies of water for irrigation than can be sustained over a long period of time.

Individual foreign organizations, companies, and governments like to propose such projects, particularly when they can sell their own technology and know-how for such projects at a profit. However, they do not seriously consider the long-range consequences for the Somali people from such dangerous projects. Therefore, the Somali people need to develop a capability for doing their own analysis for such projects, whereby the analysis is not connected with or integrated with the potentially profit-generating projects, which could distort the long-term analysis and recommendations.

4.2 Fishing

With a 3,100 Km coastline, Somalia has a large potential for developing a fishing industry. One approach might consist of simply licensing fishing fleets from other countries and sea-food processing plants to be built by foreign companies. This could bring revenues to the local Government, without requiring significant investment expenditures, other than a small navy for patrolling the territorial waters of Somalia to enforce payment of license fees for fishing there. However, this approach would not employ a significant number of Somalis and would not solve the problem of cross-training and engaging a large number of Somali nomads in a new occupation.

It would be more beneficial for Somalia in the long-term to limit most fishing in its territorial waters to Somali fleets and then to process most of their catch in sea-food processing plants in Somalia manned primarily by Somali citizens. This strategy would require substantial cross-training of nomads, and other currently unemployed Somalis, so that they could effectively pursue these new professions. It would also require substantial capital investments in a fleet of fishing vessels, sea-food processing plants, and world-wide marketing and exporting of these products. It would also be in the long-term interests of the Somali people to encourage local Somali entrepreneurs to develop this new industry, rather than for either a new Somali Government to attempt to engage in such an industry or to license foreign investors and companies to develop this industry.

The potential from fishing along this long Somali coast is one of the few real reasons why the Somali people may quickly need a national government that is recognized as such by the rest of the International Community. When local governments in Somalia attempt to collect license fees for fishing in Somali territorial waters, they are branded internationally as "pirates" and "terrorists" -- only because they are not recognized as national governments. Likewise, the lack of a national government patrolling the territorial waters has led to large international fishing fleets exploiting these waters, both because no one can charge any licensing fees and these waters have been rich with fish. Now that they are used to these free benefits, it will be increasingly difficult to convince them that as of some specific date, they will be required to pay reasonable fees to Somalia -- as they pay for fishing in the territorial waters of most other countries.

Since the territorial waters of Somali are currently not patrolled and lie along major shipping routes, large oil tankers from the Gulf Region going around South Africa pass through these waters and use this opportunity to flush their tanks of contaminated wastes, which is illegal elsewhere around the World, thereby causing serious pollution of these waters and reducing the supply of top-grade fish and other seafood there. This is another reason why a national government of some sort, that is internationally recognized as such, is needed, in order to protect this valuable Somali natural resource.

[More similar sections will be added here soon.]

5. Joining the "Third Wave" and "Global Economy"

5.1 A Brief Introduction to the "Third Wave" of Alvin Toffler

5.2 Can Somalia "Jump Start" into the "Third Wave"?

[Will be continued.]

[See the on this Article]

Areas:  Goals / / / / Economic Development / Culture

Resources: / / / Discussion Groups /

© Somali Civic Organization (in formation) 2002

Author: Jack L. Davies - Version P-1 : 13 October 2002