Somali Economy in the 1980S

Somali Economy in the 1980S

The Somali economy in the 1980s, when viewed in standard economic terms, was characterized by minimal economic reform and declining GDP per capita. But the macroeconomic perspectives, which were based on questionable data, presented an unreliable picture of the actual Somali economy. In fact, the macroeconomic figures used by the IMF and the World Bank would lead one to wonder how any Somalis could have physically survived the recent years of economic crisis. Yet visitors to Somalia, although distressed by the civil war and the wanton killing, observed a relatively well-fed population up until the 1991-92 drought. Clearly a Somali economy existed outside the realm of international data collection. Examination of what has been called Somalia's "unconventional" economy allows a better appreciation of how the Somali economy actually worked.

Export of Labor

Somalia was an exporter of labor to other members of the League of Arab States (Arab League), and Somali citizens received remittances from these workers. These remittances constituted the largest source of foreign exchange in the economy. Based on an assumption of 165,000 Somali overseas workers, with an average annual wage of US$6,150, one-third of which was being remitted, one economist has calculated that more than US$330 million was being remitted annually. This figure represented fifteen times the sum of Somalia-based yearly wages and nearly 40 percent of total GNP, including remittances. The official remittance figure was US$30 million, the amount channeled through banks. Most unofficial remittances--in the form of foreign exchange and household goods and appliances sent home from abroad--went to urban traders. This fact explains the apparent abundance of supplies in Somali cities, which, based on the foreign exchange estimates from official sources, would not have been possible. A large portion of the remittances went to supply arms to the rural guerrillas who toppled the government in January 1991.

Export of Livestock

As the macroeconomic data made clear, Somalia was primarily an exporter of livestock to the Arab states. The macroeconomic data did not make clear the proportions in which the foreign exchange earnings from livestock exports went to the government, based on the official exchange rate of those recorded sales, and to the traders and herders themselves, based on the difference between the official and informal exchange rates plus all revenues from unofficially recorded sales. A system known as franco valuta enabled livestock middlemen to hoard a considerable foreign exchange surplus. In the livestock export sector, traders had to give the government only 40 percent of their foreign exchange earnings; the traders could import anything they wished with the remaining foreign exchange. Thus, imports were substantial amid data of collapse. One needed only to be connected to a trading family to enjoy massive increases in consumption during the 1980s. In the livestock export system, franco valuta was officially discontinued as a result of the IMF structural adjustment program, but in practice franco valuta continued to be observed.

In the 1970s, northern trading families used their profits to buy real estate, much of it in Mogadishu. In the 1980s, they helped subsidize the rebels fighting the government of Siad Barre.

Rural Subsistence Sector

Somalia's rural subsistence sector produced sufficient grain and animal products (mostly milk) to sustain the country's growing population, including its massive refugee population. According to economist Vali Jamal, data on the subsistence sector underestimated the amount of milk and grain produced. The official 1978 estimate of milk production was 451.4 million liters; by using alternate data (for example, statistics on lactating animals from an anthropology study, consumption surveys, and interviews with nomads), Jamal estimated 2.92 billion liters of production, 6.5 times the official estimate. Taking into account only this change in milk production would raise GDP by 68 percent, making Somalia the forty-first rather than the eighth poorest country in the world, with an average annual per capita income of US$406.

Jamal's data showed a 58 percent increase in grain production between 1972-74 and 1984. Production of sorghum and corn reached a high of an estimated 260,000 tons and 382,000 tons respectively in 1985, before declining in the period 1987-89. Grain imports increased sixfold, however, between the early 1970s and 1985; the increase was largely caused by the refugee influx and the added imports needed to fill the food gap. After 1980 food production increased but imports continued, primarily as a result of food aid. Governments did not cut off food aid although the need for it steadily receded. Despite donor objectives, most of the imports went to urban shops rather than rural refugee camps.

Often missed by macroeconomic analyses was the vibrant agropastoralist sector of the southern interriverine area. Families mixed pastoralism--the raising of goats and sheep, and sometimes camels--with grain production. The family unit was highly versatile, and the division of labor within it changed depending on the season and the amount of rainfall. During a drought when women were obliged to trek for days in search of water, men tended the household and crops. When water was abundant, women maintained the household, and enabling the men to concentrate on the livestock.

Trade between the pastoralist and agropastoralist sectors has been greater than standard models of the Somali GNP have assumed. Agropastoralists accumulated small grain surpluses in the 1980s, and bartered this grain to pastoralists in exchange for milk. The agropastoralists received more value from this trade than by selling their grain directly to the government because government prices for grain were lower than the growers' costs. IMF agreements with the government repealed price limits on the sale of grain; the consequences of this agreement for trade between pastoralists and agropastoralists had not been reported as of early 1992.

One of the great agricultural success stories of privatization caused great embarrassment to the IMF. Qat (also spelled "kat," catha edulis) is a mild stimulant narcotic; many Somalis chew the qat leaf during leisure time. Qat is grown in the Ethiopian highlands and in Kenya and is transported through Somalia. In the late 1960s, farmers near Hargeysa began growing it. During the drought of the 1970s, the qat plants survived and their cultivators made handsome profits. Investment in qat plants soared in the 1980s. Sales of qat enabled farmers to stay ahead of inflation during a time when prices for other crops fell. Many farmers used their profits to rent tractors and to hire day laborers; doing so enabled them to increase food production while continuing to grow qat. The large surplus income going to qat farmers created a free market in land, despite national laws prohibiting land sales. The IMF never mentioned this economic success as part of the positive results of its program. The government wrongly believed that the production of qat was cutting into grain production; the data of political scientist Abdi Ismail Samatar indicates that farmers producing qat grew more grain than those who did not produce qat. The government also believed that qat was harmful because it was making the general population drug-dependent. The Siad Barre regime hence banned qat production, and in 1984 qat fields were destroyed by government teams. Nevertheless, the qat story of the 1980s demonstrated the vibrancy of the Somali economy outside the regulatory regimes of the government and the IMF.

Urban Subsistence and Government Employment

The Somali government and its officials collected grants and bribes from foreign governments and taxes on internal trade that provided substantial wealth to the ruling elite. As of July 1991, domestic trade in the south for the most part had been disrupted. Only small quantities of goods such as fruit, sugarcane, and charcoal moved from the villages to the towns, in return for cornmeal and, since 1988, guns and ammunition. At a national level, armed trucks traveled from Jilib, on the Jubba River, or Chisimayu, to Mogadishu, carrying from the Jubba River area agricultural products such as mangoes and sesame and returning with corn, wheat, refined sugar, and diesel fuel. International trade by sea was at a virtual standstill, but goods were smuggled across the border with Kenya in return for qat primarily. In the north at the same period, the anarchic situation since 1988 had severely curtailed agricultural trade, particularly livestock exports. In addition, those farmers in areas where planting was potentially feasible in 1991, such as around Erigabo and Boorama, northwest of Horgeysa, lacked sorghum, corn, and vegetable seeds, as well as tools, and were hindered by the presence of minefields in many locations. Internationally, goods were smuggled across the Ethiopian border, largely in exchange for qat.

The funds collected in the past on internal trade also provided below-subsistence wages to a number of urban Somalis because for much of the 1980s the government served as the employer of last resort of all secondary-school graduates. Using these revenues, the government also sustained an army that was in continual warfare beginning in 1977, first against Ethiopia, and then against an internal guerrilla movement.

Largely as a result of structural adjustment in the latter half of the 1980s, government employment was not lucrative at face value. A family of six needed an estimated 6,990 shillings monthly for food, clothing, rent, fuel, light, and water. The highest civil service salary was 2,000 shillings per month, of which 525 shillings was deducted for taxes and other charges. The highest take-home pay, including allowances, in government was about 2,875 shillings.

Urban wages that were inadequate to address basic human needs might lead an analyst to expect near-starvation in urban Somalia. However, a 1984-85 household survey in Mogadishu reported that only 17 percent of the city's families lived below the poverty threshold. A November 1986 study in the Waaberi district of Mogadishu found only 7 percent had incomes below the poverty line. Informal observations of urban life in Somalia reported in the 1980s concurred that the population appeared well-fed.

The puzzle of low government wages coupled with a reasonable urban standard of living can be solved by examining the survival strategies of urban families. In the potential urban labor force of 300,000 to 360,000 people, there were only 90,282 wage earners, which suggested that government employment was only one part of a family survival strategy. Many families had one member working for the government, not so much for the salary, but for the access to other officials that enabled the family to engage in quasi-legal trading activities. Remittances from overseas prevented starvation for some families. Many urban families had members who were livestock traders and through franco valuta had access to foreign exchange. Many government workers prospered on bribery from the profiteers in the so-called gray economy. Other government workers could obtain "letters of credit" (the right to draw funds from government-held foreign exchange accounts) allowing them to import goods for sale and for family use. Still other civil servants moonlighted for international agencies, receiving valuable foreign currency for their efforts. These strategies were excluded from most macroeconomic assessments.

Undeveloped Sectors

Plantation Economy

In the early 1990s, the plantation economy remained undeveloped, even for bananas, which remained Somalia's principal cash crop and second most important export, after livestock. Because of government taxation of exports, this sector had been in decline in the early 1980s. In 1983 the government National Banana Board formed a joint venture with an Italian company to create Somalfruit. The higher producer prices, increased input availability, and improved marketing and shipping facilities resulted in a 180-percent increase in banana production from 60,000 tons in 1980 to 108,000 tons in 1987. By 1986 banana exports accounted for 13 percent of total exports, up from just over 1 percent in 1982.

Mining

Somalia's mineral sector was of minuscule value in the overall Somali economy (in 1988 it represented only .3 percent of GDP). There was some production of salt with solar evaporation methods, mining of meerschaum (sepiolite) in the Galguduud Region, mining of limestone for cement in the Berbera and Baardheere areas, and some exploitation of some of the world's largest deposits of gypsum-anhydrite near Berbera, and of quartz and piezoquartz (useful for electronics). Somalia also has some large uranium deposits in the Galguduud and Bay regions, and in 1984 work began to develop them. In the Bay Region, there are also large iron ore deposits. The development plan in 1986 reported that results of natural gas exploration in Afgooye near Mogadishu were negative, but indications of favorable oil and gas resources in the country persisted. Results of testing for gold in the Ceelbuur area in Galguduud Region and Arabsiyo area near Hargeysa had not been published as of early 1992.

Forestry

Nearly 14 percent of Somalia's land area was covered by forest in 1991. Frankincense and myrrh, both forest products, generated some foreign exchange; for example, in 1988 myrrh exports were valued at almost 253 million shillings. A government parastatal in 1991 no longer had monopoly rights on the sale of frankincense and myrrh, but data on sales since privatization were not available. Savanna trees had been Somalia's principal source of fuel, but desertification had rapidly eroded this fuel source, especially because refugees from the Ogaden War had foraged the bush in the vicinity of refugee camps for fuel. The government's 1988 development report stated that its sand dune stabilization project on the southern coast remained active: 265 hectares of a planned 336 hectares had been treated. Furthermore, thirty-nine range reserve sites and thirty-six forestry plantation sites had been established. Forestry amounted to about 6 percent of the GDP.

Fishing

In part because Somalia has 3,025 kilometers of coastline, fishing was a sector with excellent economic potential. Considerable attention had been paid to this sector, especially since the 1974 drought, when 15,000 nomads were resettled in fishing cooperatives. Data in the latter half of the 1980s showed improvement in the fishing industry. Food and Agriculture Organization estimates of total tons of fish caught and processed rose from 16,900 in 1986 to 18,200 in 1988, an increase that resulted from the development of a national fishing fleet. Yet fishing remained a largely unexploited sector, contributing less than 1 percent of GDP in 1990.

Manufacturing

Manufacturing achieved some success in the early 1970s, and was primarily based on processing of agricultural product. In 1986 the government planned to bring its sugar- and milkprocessing plants up to full production, to add a new cement factory in Berbera, and to contract with an Italian firm to operate its urea factory, which was producing at less than 30 percent of capacity. In 1989 a hides- and skins-processing plant in Mogadishu was completed with Italian government financing. Despite this activity, manufacturing did not respond to IMF incentives as well as agriculture had. In 1988 there was a decline of 4.9 percent in production. The decline followed a 5 percent increase in 1987. The government blamed the decline on shortages of inputs and spare parts and on poor management. By 1990 manufacturing had all but ceased to play a significant role in the economy, contributing only about 5 percent of GDP.

Foreign Trade

Somalia's major exports consisted of agricultural raw materials and food products. Livestock was the principal export, with sheep and goats representing the leading categories, followed by cattle and camels. Banana exports rose sharply in the 1980s and by 1986 occupied second place, followed in descending order by hides and skins, fish and fish products, and myrrh.

The largest single import was food, with 1986 food imports reflecting the effects of the drought being experienced in the area. Transportation equipment was in second place among imports, followed by nonelectrical machinery, mineral fuels, cement and building materials, and iron and steel.

In 1990 Italy was the leading importer of Somali goods, having narrowly replaced Saudi Arabia. Other Arab states, such as Yemen and the United Arab Emirates, were also important customers for Somali products. In 1990 Italy was the primary country of origin for goods imported into Somalia, with other nations such as Norway, Bahrain, and Britain distant sources of imports. Somalia consistently experienced an overall negative trade balance, which contributed to its balance of payments deficit.

In summary, with the 1991 overthrow of Siad Barre's government, Somalia faced a new era. Past economic experience had taught valuable lessons. First, the Somali people have for millennia been able to survive and even prosper in a harsh environment, whether it be natural or political. Second, grand economic strategies, whether from Benito Mussolini, Karl Marx, or the IMF, have not provided Somalia with a means to live beyond the subsistence level. Third, the handful of successful projects in the colonial, postindependence, socialist, and IMF-led economies suggest that a nondoctrinaire combination of approaches could promote a richer economy.

https://en.wikipedia.org/wiki/Somalia
https://www.state.gov/r/pa/ei/bgn/2863.htm


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