Somalia - Overview of economy



Most economic activity was disrupted by the breakdown of the Somali state in 1991. Before this disaster, Somalia was one of the world's poorest countries, but it had been making modest progress despite the absence of mineral or hydro resources and limited fertile agricultural land. The breakdown of the state and the immersion of the country in nearly a decade of civil war has devastated the economy and distanced the country from the international community.

Agriculture is the country's most important sector, comprising some 60 percent of the GDP, with livestock accounting for about two-thirds of the value of agricultural output and about two-thirds of export earnings. Livestock is produced mainly by nomadic groups who make up perhaps 50 percent of the total population. Bananas are also exported. Sugar, sorghum, and corn are the other main agricultural crops. Fish are harvested by small-scale methods for local consumption. The industrial sector has always been small, at around 10 percent the GDP, and its output has probably contracted faster than the rest of the economy, so it now produces perhaps 5 percent of the GDP. It comprises some agricultural processing, but the simple manufactures, such as soap, soft drinks, and consumer goods , have almost all closed down as the result of the ongoing conflict. The lack of security has impeded international aid programs, and there is continual fear of food shortages throughout the country and famine when harvests fail through drought. In normal circumstances the people are industrious and enterprising, and many Somalis have fled to neighboring countries where they have established successful enterprises, particularly in the transport sector, remitting money back to Somalia, which has been an important feature of the population's survival over the past decade.

Somalia was formerly a socialist -oriented economy that was undergoing market-oriented structural adjustments until 1991. These policies were designed to allow more sectors of the economy to have production, sales, and prices determined by the market, rather than regulated by the government. Major features of the program were to allow the exchange rate to be determined by supply and demand for foreign exchange, to allow banks to set interest rates for both depositors and borrowers, to end controls on prices of commodities, and to transfer state-owned enterprises to private ownership. Privatization of wholesale-trade and financial sectors was largely completed by 1991, and although economic growth was sporadic and uneven across the sectors, average living standards were being maintained in the face of a population growth rate of around 2.9 percent a year. Since the overthrow of President Siad Barre in 1991, however, the country has had no viable central government, and national economic planning has been haphazard or nonexistent.

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