Somalia had been without a functioning government for most of the last three decades. The country was torn apart by clan based warfare that destroyed political, social and economic institutions. The central government collapsed in 1991 and after a decade of lawlessness, international diplomatic efforts were re-energized and in 2000 Djibouti hosted a political conciliation process that led to the formation of Transition Federal Government (TFG), which then had to battle an Islamic movement. The remnant of that struggle, al-Shabaab, proves to be the biggest threat to a stable Somalia today.
Somalia moved from a transition government to a globally recognized government in September 2012, after a new president was elected within the country for the first time since 1991. In another successive peaceful transfer of power the current government was elected in 2017, and has pursued an aggressive policy of fiscal reform. Despite continued progress, the country still faces serious security challenges and political uncertainty. The leadership of the federal government and federal member states are in constant political tussle that limits efforts at state building while al-Shabaab remains a threat to stability and security.
Generally, the government has a positive attitude toward direct foreign investment, however, the current investment climate requires improvement before being ready foreign investment. Formal economic activity is largely restricted to Mogadishu and the other regional capitals that are under the control of the federal government or regional administrations. Corruption is rife in all government sectors and civil courts are largely nonfunctional. Transparency International’s perception index ranked Somalia as the most corrupt country in the world again for 2018. Somalia’s external debts stands at USD 8 billion USD and the country has not serviced its debt since the fall of the central government in 1991.
Despite this, there has been a positive economic trend over the past couple of years. According to the IMF, economic growth has rebounded, inflation has slowed and the trade deficit has narrowed. Accordingly, data through November 2018 show domestic revenue reached USD 161 million, 31 percent higher than the same period in 2017, and the overall cash fiscal position showed a surplus of USD 8 million, according to the IMF. Economic sectors such telecommunication, agriculture and construction have experienced steady growth in the recent years. Further, Somalia’s government is inviting bids for an upcoming offshore hydrocarbon licensing round.
The IMF is currently helping Somalia reach debt relief under the Heavily Indebted Poor Countries (HIPC) program, under which Somalia has been performing well and meeting benchmarks. If the country continues its track record of reform and sound economic policies, it is on track to reach the critical Decision Point for debt relief in early 2020. This will make the country eligible to obtain financing from international financial institutions and to avoid the country slipping back to arrears.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||180 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||190 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||N/A||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2018||N/A||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||N/A||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|