The foundation Somalia must lay down to restore economic stability


Another key issue the government must undertake while walking the rope of investment attraction is the maintenance of peace, law and order. Political dialogue with the upcoming general elections has to prevail to ensure foreign assistance is maintained as this may decline if political stability is not maintained.

Given Somalia’s dependence on foreign aid, any disruption in donor support—as a result of frustration with the reform process or political bickering, for example—would severely curtail budget implementation. Foreign assistance is channeled both on and off budget.

Direct budget support from donors represented 36 percent in 2013 and 39 percent in 2014. Off-budget donor financing totaled $137.1 million (73 percent of the 2014 budget).

Business competition in different sectors must maintain fair competition to allow for the thriving of various industries. Chief among these are the Telcos where one is still not allowed to call across network. The phenomenon is highly uncompetitive and detrimental to business in the modern times when communication drives business and expands economies.

“Without investment” he continued, “the desired growth will not take place and without growth our national goals for achieving a secure, stable and economically prosperous Somalia will be even more challenging.” Hassan Sheikh Mohamud, President of the Federal Republic of Somalia.

The Regional States of Somalia should also be discouraged from erecting economic barriers to the free flow of goods and commerce within Somalia or complicating the investment environment in other ways.   Somalia needs to attract the kind of domestic and international investment that will make a sustainable contribution to the economy. Coherent regimes for investment are central to creating this enabling environment. Center-state “tax jungles” or tax competition among states is to be avoided at all cost.

Finally, competition and unequal access to limited resources have often been a cause of conflict in Somalia. If they are well designed, fiscal arrangements can help address inequities and engender solidarity. Beyond issues of conflict, inequitable distribution also has economic consequences. Highly unequal fiscal outcomes might trigger movements of population to better-endowed states (a right Article 21 of the Provisional Constitution grants to individuals), putting pressures on services and potentially raising tensions within or between regional states regarding access to services by residents of one region who migrate to another.

On the revenue collection front, the government needs to begin investing in digital monitoring of trade volumes and various income generations in Somalia which largely go untaxed. Many industries are not well engaged in revenue mobilization including those with lucrative sources like oil and telecommunications industry.

In 2012, the FGS mobilized only USD 30 million in domestic revenue, equivalent to 0.9 per cent of GDP, and $5 million in external assistance to the budget .Revenues and grants rose from 1 percent of GDP in 2012 to 3.7 percent in 2014 and was projected to reach USD 199 million in 2015, up from USD 145.3 million in 2014. However, domestic revenue collection and grants underperformed in 2014, particularly Indirect and other taxes.

Reliance on taxation at the points of entry with the inland trading largely remaining a free market for all will not be beneficial to the government which is badly in need of revenues for reforms and reconstruction.