An Economic Policy Agenda for Post-Civil War Somalia

This study provides a framework for understanding the Somali economy, its poor growth performance since independence in 1960, current underlying economic and sector trends that best explain prevailing conditions and long-term development challenges, and what needs to be done to embark the economy on a sustained path to growth and poverty reduction. It argues that, at the turn of the millennium, the economy is undergoing a fundamental, unmanaged transformation that is largely reflected in two major trends: (a) the slow but steady decline of the “old economy,” which is dominant and based primarily upon the degenerating traditional rural economy and its important urban linkages, and (b) a nascent but expanding private sector-led “new economy” that has emerged with the de facto free markets since the collapse of the State in 1991. While the former was and will remain a major source of poverty and decline for the economy, the latter has become a major source of modernization, assimilation of new technology and knowledge, increased specialization and division of labor, better products and competitive prices, and positive externalities for the economy since 1995. It is suggested that encouragement of this nascent new economy and the proliferation of its positive features represent the best course for Somalia to achieve sustained growth. Therefore, managing properly the transformation from the old to the new economy will pose the greatest challenge for public policy in the foreseeable future. The question is: what are the key policy requirements that would allow a successful comprehensive transformation to the new economy?

To frame an answer, the study draws extensively from the policy lessons of Somali experiences since 1960. It reassesses the role of the state in the economy, as well as its institutions and policies, to tailor them to adequately address Somalia’s complex inter-related long-term economic and sector challenges in a consistent and comprehensive manner. From this reassessment arise parameters of a policy agenda that seeks to promote good governance; create good, credible, and effective public institutions that provide public goods and basic services; preserve and improve the free market environment and market institutions; encourage and seek partnership with the private sector in development; promote rural development; tackle poverty; mobilize and coordinate domestic and international resources for development; and see to minimize the political economy factors that could undermine policies and results. For a resource-poor economy, this is a demanding agenda for economic modernization, growth, and poverty reduction, but also essential for social and political stability. It is a wonderful opportunity for Somalia.