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Quick Facts
- Population:
- GDP (PPP):
- $6.1 billion
- 2.6% growth
- $600 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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The 2013 Index includes Somalia for the first time since 2001. However, Somalia’s economic freedom is not graded because of a severe lack of reliable data caused by the country’s ongoing political instability. The last time Somalia was fully graded was in the 2000 Index when it received a score of only 27.8.
Mired in extreme violence, political instability, and famine, Somalia remains a failed state. The institutions necessary for meaningful economic progress are nonexistent because decades of lawlessness have destroyed the foundations of economic freedom. Complete economic collapse has resulted in massive human migrations, and much of the population remains abandoned to severe poverty. A humanitarian catastrophe has been unfolding in the devastated economy due to the most severe drought in recent years.
Continued civil conflict and the lack of a credible, lasting political settlement have prolonged and exacerbated the tragic famine triggered by the severe drought. It is estimated that about one-quarter of the population still needs emergency food aid.
Background
Somalia has been in chaos ever since the collapse of the Siad Barre regime in 1991. Conditions worsened when a U.N. humanitarian mission’s mandate ended in 1995, and Somalia still lacks effective national governance. The Transitional Federal Government (TFG) failed to establish stability and was forced to rely on the African Union’s peacekeeping mission to Somalia (AMISOM) to protect civilians. Processes designed to replace the TFG with a permanent government have encountered numerous delays. An autonomous Republic of Somaliland, not recognized by any government, maintains a relatively stable de facto independence in the northwestern part of the country. The Bari, Nugaal, and northern Mudug regions comprise the semi-autonomous state of Puntland. Somalia’s informal economy is based largely on agriculture and livestock herding. With the economy in shambles, the population is heavily dependent on overseas remittances and foreign aid.
The rule of law as practiced in the West does not exist in Somalia, which is rated as one of the world’s most corrupt nations. In the absence of a functioning central government, numerous armed groups and militias control different parts of the country. Although local authorities or elders sometimes enforce laws based on traditional customs, Islamic Sharia law has become more entrenched in the country since 2009.
There is no fully 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. In southern Somalia, taxes are often levied by local warlords or clan leaders and used to pay militiamen. In Somaliland, duties levied at the port are estimated to provide around 80 percent of government revenue.
Political instability, an outmoded regulatory environment, and inadequate infrastructure significantly deter the formation and operation of businesses. The labor market is dominated by the agricultural sector and informal hiring practices. Agriculture is the most important sector, with livestock normally accounting for about 40 percent of total domestic output and more than half of Somalia’s limited export earnings.
Much of the population remains outside of the formal trade and banking sectors, and private investment remains extremely limited. Swiss Financial Bank announced in 2011 that it intends to open a bank in Somaliland. Swiss Financial is one of three international commercial banks that have applied for licenses to operate in Somaliland in anticipation of the passage of a new banking act.