Somalia is not graded in the 2018 Index because of the unavailability of relevant comparable statistics on all facets of the economy Although it lacks effective national governance due to ongoing violence and political unrest, Somalia’s largely informal economy is able to function through remittance/money transfer companies and telecommunications. The central government controls only part of the country, and formal economic activity is largely restricted to urban areas like Mogadishu.
Stability in Somalia is extremely fragile because of fierce clan-based rivalries within the political elite and the continuing influence of Islamist insurgents. The lack of central authority makes the rule of law inconsistent and fragmented, with different militias, authorities, and tribes applying varying legal frameworks. Traditional Islamic jurisprudence (Sharia law) has become entrenched. Levels of corruption remain high, and the lack of transparency and formal bookkeeping makes government revenues vulnerable to embezzlement.
British and Italian Somalilands were merged into Somalia in 1960. A coup led by Mohamed Siad Barre in 1969 ushered in two decades of brutal socialist rule. Since the collapse of Barre’s regime in 1991, multinational military missions have protected a succession of weak and short-lived governments. The current African Union Mission to Somalia (AMISOM) peacekeeping force arrived in 2007 and has pushed back against the Islamist terrorist group al-Shabaab. Mohamed Abdullahi Mohamed won a delayed and corruption-ridden presidential election in 2017. Somalia’s GDP and living standards are among the world’s lowest; many people depend on remittances from abroad. In March 2017, the U.N. warned that drought-crippled Somalia was at risk of famine. Livestock, agriculture, and fishing are economic mainstays.
At the core of ongoing civil unrest are disputes over real property that have sparked many conflicts over land and land grabs by warlords, especially in South-Central Somalia. The civilian judicial system is largely nonfunctional across the country. Corruption is rampant. Somalia was ranked last, behind South Sudan and North Korea, among 176 countries surveyed in Transparency International’s 2016 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.
Inadequate infrastructure, the lack of a regulatory environment, and the constant threat of looting and violence deter business formation. 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 experienced modest growth without subsidies.
Trade is significant for Somalia’s economy; the combined value of exports and imports equals 78 percent of GDP. However, ongoing conflict interferes with international trade and investment flows. Somali diaspora remittances continue to be an important source of foreign exchange and economic support for the majority of Somalis, helping households to confront poverty and finance basic needs.