Violence and political unrest have prevented Somalia from developing a coherent and coordinated domestic marketplace. The central government controls only part of the country, and formal economic activity is largely relegated to urban areas like Mogadishu. The lack of accurate economic statistics precludes ranking Somalia in this edition of the Index.
Lack of central authority makes the rule of law inconsistent and fragmented, with different militias, authorities, and tribes applying varying legal frameworks. Traditional customs like Sharia law have become more entrenched. The level of corruption remains high, and the lack of transparency and formal bookkeeping means that government revenues are easily embezzled.
Since the collapse of longtime dictator Siad Barre’s regime in 1991, various peacekeeping forces have protected a succession of weak and short-lived governments. The current AMISOM multinational force was inaugurated in 2007. A provisional constitution was passed in August 2012, and Hassan Sheikh Mohamud was elected president in September. The Islamist terrorist group al-Shabaab has been pushed from its most important strongholds, but it remains a potent threat. Somalia’s GDP and living standards are among the lowest in the world, and the population depends on foreign aid and remittances. Economic growth is slowly expanding beyond Mogadishu. Livestock, agriculture, and fishing are economic mainstays.
Disputes over real property are at the core of ongoing civil unrest, marked by many conflicts over land, land grabs by warlords, and huge displacements of local populations, especially in South Central Somalia. The civilian judicial system is largely nonfunctional across the country. Corruption is rampant. Somalia was tied with North Korea for last place among the 168 countries surveyed in Transparency International’s 2015 Corruption Perceptions Index.
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. 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.
An outmoded regulatory environment and inadequate infrastructure deter the formation and operation of businesses. The labor market is dominated by informal hiring practices. Somalia has a nascent financial sector and no control over monetary policy, but its informal agricultural, construction, and telecommunications sectors have seen modest growth without subsidies.
Trade is important to Somalia’s economy; the value of exports and imports taken together equals 76 percent of GDP. Much of the population remains outside of the formal trade and banking sectors, and private investment remains extremely limited. Somali diaspora remittances continue to be an important source of foreign exchange and economic support for the majority of Somalis.