Running head: EVOLUTION OF INTERNATIONAL TRADE: SOMALIA 1

EVOLUTION OF INTERNATIONAL TRADE: SOMALIA

Mst. Shubham Mahesh Khaire

University Of Mumbai Law Academy

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Evolution of International Trade: Somalia

Abstract

This paper describes the evolution of international trade in the East African country of

Somalia, officially known as The Federal Republic of Somalia. It has the longest coastline on

Africa’s Mainland. Somalia has an estimated population of around 15 million.

Somalia caught the world’s attention in 2011 when a famine killed over a quarter of a

million people. The country has been struggling with extreme weather changes, violence and

disease for nearly 30 years and is increasingly subject to severe climate shocks that are

worsening a prolonged humanitarian crisis. About three-fifths of Somalia’s economy is based on

agriculture; however, the main economic activity is not crop farming but livestock raising.

In the early 21st century, the country remained one of the poorest in the world, and its

main sources of income came from foreign aid, remittances, and the informal sector.
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Significance of Study

Somalia has a significant trade deficit. Its main exports are livestock and bananas, which

are mostly shipped to Arab countries. Hides and skins, fish, and frankincense and myrrh are

among the other products exported. Almost everything is imported, including food for a city

population that is no longer accustomed to a traditional diet. Besides the official market, there is

also a flourishing informal market, by means of which tens of thousands of Somali workers in

Arab countries provide commodities missing on the Somali market while avoiding the duties

levied on imports. Since wages in Somalia are very low, almost every family is directly or

indirectly involved in informal trading.

There is no effective national government that can provide basic services. Other than the

collection of very limited duties and taxes, little formal fiscal policy is in place. Somalia’s

economic recovery continues to be delayed, and dependence on aid persists. A new income tax

law has been submitted to parliament for approval, but the lack of productive economic activity

severely constrains the government’s ability to generate revenues.

The Council of Ministers approved the Economic Recovery Plan for 2014–15 in September

2013. The short-term aim of the plan is to support the most productive sectors by providing

stability and rehabilitating critical infrastructure.

In the long term, the aim is to achieve “sustained economic development and poverty

alleviation, founded on responsible macroeconomic management, infrastructure rehabilitation

and equitable access to services,’ FGS (2013). The Plan requires 642 million United States

Dollars (USD) of external financing, however flagship programmes have been prioritised that

would require less than one third of this; 222 million USD. The flagship programmes include
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upgrading state capacity, rehabilitating key infrastructure and getting one million children to

school.

Somalia’s economy is growing. While accurate data is difficult to attain, it is generally

agreed that the economy stagnated during the conflict. Since 2008, however, our best estimates

are that growth has returned. The economy grew by 3.7 percent in real terms in 2014, according

to IMF (2015). The main sources of growth were in the areas of agriculture, construction and

telecommunications. Looking forward, growth is expected to continue. The IMF expects the

economy to grow by 2.7 percent 2015 and then hover close to 4 percent in 2016 and 2017.

Somalia’s strongest geographical asset—its location. A major shipping route passes

Somalia on its way to the Suez Canal, where close to 10 percent of the world’s sea-borne trade

passes through. As a result, Somalia is in an excellent position to participate in international

trade. Somalia’s main export is livestock. During the conflict, this industry was massively

affected, with exports of live animals falling as low as 23 million USD. Since 2008, however,

things have changed. In the five years to 2013, the value of Somali livestock exports have grown

38% on average every year. A line-by-line comparison of goods and services coming in and out

of Somalia suggests that the structure of its economy may be changing. Comparing the five years

before and after 2008, we find that imports of some luxury consumption goods, like

manufactured tobacco, have decreased significantly; by 58 percent in the case of tobacco. In

contrast, imports of goods that are more useful for growing an economy, like civil engineering

and contractors’ plant and equipment, tractors, lighting fixtures and fittings have all grown by

411%, 448% and 360%. In short, growth conducive imports are up while luxury consumption

goods are down. To be clear, only a very small proportion of the Somali population participates

in international trade. Also, in the long road to recovery, these are modest gains. Somali
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exporters in particular, will need to lift their performance considerably if they are to compete on

the international stage. The confidence that foreign consumers have in the quality of their exports

is low. Even if it was high, there are no established quality standards or regulatory system.

This forces Somalia’s trading partners to send their own people to monitor quality

standards in production. It has also meant that some Somali exporters are reportedly mislabelling

their goods to hide their Somali origins. In all, however, it is clear that Somalia’s participation in

international trade is in the healthiest position that it has been for more than twenty years. The

export sector is generating revenues and there is considerable potential for further growth.
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 Recent Treaties

Somalia-Africa

Somalia cabinet has approved the Africa Continental Free Trade Area (AfCFTA) treaty

for ratification to help spur trade with other African countries.

A statement issued by the office of the acting Prime Minister Mahdi Mohamed Guled

said on Friday that the bill which was submitted to the cabinet during its weekly meeting on

Thursday was unanimously approved.

"The mission of AfCFTA is to create a single market for free trade in goods and services,

to achieve free movement of traders and investors across the continent, and to expand trade

within Africa through better integration," it said.

The cabinet said under AfCFTA, Somalia will have the opportunity to sell its products on

the continent, tap investment and boost intra-Africa trade.

Initially scheduled for July, the implementation of the AfCFTA agreement was postponed

due to COVID-19.

Somalia-Turkey

 Somalia said on Monday that it signed a raft of trade agreements with Turkey aimed at

boosting an already thriving economic cooperation between the two countries.

Somali Deputy Prime Minister Mahdi Ahmed Gulaid said he signed a cooperation

protocol during the inaugural meeting of a Joint Economic Commission (JEC), noting that

Mogadishu was open to foreign investment and ready to boost trade cooperation with all friendly

countries.
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"The agreements will also open Somali exports to Central Asian markets through the

Turkish gateway as well as to contribute to the country's economic recovery and to generate

employment for the Somali youth," Gulaid said in a statement issued in Mogadishu.

He said the objective of the JEC is to translate the number of memorandums of

understanding signed between the two countries into reality with immediate priority being to

open Turkish markets for Somali products such as dry lemon, sesame and banana.

The deputy prime minister stressed that revitalizing the Horn of Africa country's

economy was one of the top priorities of the Somali government.

The two countries had previously signed trade agreements in areas such as energy, mines,

electricity, higher education, agriculture, and fisheries.

Gulaid said Turkey's investment in Somalia is more than 100 million U.S. dollars,

predicting that the bilateral trade volume could rise to 200 million dollars from about 120 million

dollars in 2016.

The two countries resolved to convene regular meetings to follow up on the

implementation of the agreements and to bolster the strategic cooperation in the years to come.

"Apart from the historical relations between our countries, Turkey has become a very

important ally for the Somali people and we are committed to consolidate these relations for the

mutual benefit of our two countries," Gulaid said.

He said trade ties will also open the gates for the Somali business community to have

business-to-business deals with their Turkish counterparts and to participate in Turkish trade

fairs.
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Somalia’s WTO accession

Becoming a member of the World Trade Organization (WTO) isn’t automatic – it’s a

process that involves commitments and consensus, questions and responses, meetings and

negotiations.

The accession process can be as quick as less than two years, in the case of the Kyrgyz

Republic, or take as long as 18, in the case of the Seychelles, with factors both domestic and

international influencing progress. 

Somalia started on its accession path in 2016 with an application to the WTO Director-

General. Now, in 2020, the country has made some strides forward. This includes submitting in

April the required Memorandum on the Foreign Trade Regime (MFTR), a document that

outlines the country’s trade and economic policies as well as trade agreements with other

countries. Based on the MFTR, WTO members have submitted over 150 questions to Somalia

that the country will be responding to. 

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Conclusive Comments

After two decades of conflict, state collapse, warlordism, and weak transitional

governments, the Federal Government of Somalia was established in 2012, with a “road map”

towards stabilization, recovery, and reconstruction. This would suggest that Somalia, with

incremental increases in savings and investment, could achieve high rates of growth quickly.

Thus far, however, the reality has proven quite different. From an annual growth rate

between 5 percent and 7 percent in 2015-16, Somalia’s growth rate has now slowed to less than 3

percent. Consider Somalia’s perfect storm of vulnerabilities:

o The poverty rate (percent of the population below $1.90/day, 2011 PPP), based on one of

the few high-frequency surveys undertaken in the country, is estimated at 69 percent, the

sixth-highest in the world. Among internally displaced Somalis the poverty rate is 74

percent.

o In the UNDP’s multidimensional poverty index score of “intensity of deprivation,”

Somalia ranks last.

o One of the most drought-vulnerable countries in the world, Somalia went through a

punishing drought between 2015 and 2017 leaving over 20 percent of the

population “food insecure”; this year, drought has returned to Somalia.

o Somalia has been in arrears to the IMF for over three decades—the second-longest period

of protracted arrears (after Sudan) in IMF history—rendering it ineligible to receive

financial assistance from the IMF or the World Bank Group.

o According to the Center for Systemic Peace’s “Major Episodes of Political Violence”

data, Somalia (along with Afghanistan) has seen the greatest intensity of prolonged civil

war since 1980.

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o According to event data from the Armed Conflict Location & Event Data Project,

Somalia has since 1997 experienced the most incidents of armed organized violence

against civilians in the world.

o According to data from the International Maritime Organization, between 2005 and 2015,

over one-third of all worldwide maritime pirate attacks involved Somali pirates.

Somalia has become Africa’s most violent state. Since 2006, Al-Shabaab has capitalized

on the weakness of Somalia’s central government to seize large swaths of territory. However,

this violence has many participants. In 2016 alone, 150 unique armed groups were active in

Somalia, almost three times as many as were active in 2010. The majority of this increase is due

to the proliferation of so-called “clan” militias.

Moreover, conflict in Somalia threatens to spill over into Kenya, where some 2.4 million

Somalis live. By 2011, al-Shabaab controlled sections of Mogadishu and the port of Kismayo.

As part of the African Union Mission in Somalia (AMISOM), Kenyan troops entered Mogadishu

and successfully pushed the militants out of the city. In response, al-Shabaab has committed

more than 150 attacks in Kenya including a January 2016 attack on a Kenyan army camp in El

Adde killing 200 soldiers, an April 2015 attack on a Kenyan college campus that killed 148

people, and a September 2013 attack on a shopping mall in Nairobi that killed 67.

The unemployed youth population (about 67 percent) is a significant contributor to state

fragility. In addition to irregular migration patterns, unemployed youth are also prime targets for

extremist recruitment.

In their latest National Development Plan, Somali authorities are focusing on political

stabilization, rebuilding state institutions, improving economic resilience, and reducing poverty.

At present, Somalia’s diaspora is estimated to remit nearly twice the level of official
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development assistance and five times the level of humanitarian aid annually. Remittances

account for about one-third of GDP, roughly equivalent to government revenues, and help to

support livelihoods for an estimated 40 percent of the population. Remittances also help finance

Somalia’s large trade deficit, paying for a sizeable portion of imports.

It is not nearly enough. A recent assessment of the resource requirements for the basic

services that countries need to reach the Sustainable Development Goals concludes that the

minimum amount of targeted resources is around $270 to $350 per capita for low-income

countries. Were Somalia’s entire government budget (including grants), along with remittances,

be used to finance these services, the total would amount to $50 per person. With debt at about

$4.7 billion (100% of GDP, of which 96 percent is in arrears), Somalia will require dramatic

levels of support from the international community to fund these critical humanitarian and

development needs.
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Webliography

https://www.brookings.edu/blog/future-development/2019/10/02/somalias-path-to-

stability/

http://www.xinhuanet.com/english/2018-01/16/c_136897763.htm

http://www.xinhuanet.com/english/2020-08/14/c_139291333.htm

https://www.theyworkforyou.com/wrans/?id=2020-11-24.120189.h

https://www.intracen.org/country/somalia/

ustr.gov/countries-regions/africa/east-africa/Somalia#