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Peace and Stability to drive economic growth in 2018/2019, the highest in four years

The African Development has predicted the
current relative peace and political will herald a four year high economic
growth in the 2018-2019 for Somalia.

The rise in GDP growth in 2018 and 2019 is also expected to be driven by a recovery in the agriculture, higher private-sector investment, and improved security. Inflation, which has been contained by dollarization and the sharp decline in oil prices, is predicted to remain around 2.7% in 2018 and 2019.

This comes even as the International Crisis Group warned the  that the strides made could be wiped out if some of the gains made by  AMISOM   in ensuing security and the promise for major reforms are kept.

Already the African Union  there are no structures within the Somalia National Army

“If the government  fails to deliver on key reforms including rebuilding the national army, revamp the constitution , curb corruption and strengthen federalism, both the domestic and external support for the Federal government of Somalia will inevitably wane and al shabaab will be  in a stronger position to rebuild its forces and support”, reads a report by the International Crisis Group.

Over the past four years, real GDP growth has been moderate, averaging about 3.4%. Real GDP growth slowed  to an estimated 2.4% in 2017, due mainly to the ongoing drought, and is projected to recover to 3.5% in 2018 and 2019.The main drivers in 2017 were construction, telecommunications, and financial services.

The Economic regeneration is symbolized by upmarket hotels, restaurants and homes in Mogadishu is largely underwritten by the diaspora Somalis , worth some $1.4 billion each year.

Domestic revenue increased from 0.6% of GDP in 2012 to 1.8% in 2016 due to better tax administration and greater engagement with the private sector. Government capacity to generate sufficient revenues and stabilize the macroeconomic environment continues to be constrained by the small size of the formal economy and limited capacity to collect taxes due to widespread insecurity and institutional constraints.

The government continues to rely on official development assistance, which was 21% of GDP in 2016 and is expected to drop marginally through 2018. External debt stock, estimated at $5 billion, continues to accumulate arrears, precluding access to external borrowing, particularly concessional debt. Since April 2016, the exchange rate has remained relatively stable.

The Central Bank has not issued any bank notes since 1991; it does not have control over the exchange rate or the supply of the currency, which is printed by private players.

Major achievements include conducting peaceful elections in February 2017, in which a new president and Federal Parliament (with greater representation of women andyouth) were elected, and creating several autonomous Federal Member States.

Key economic achievements include drafting the first National Development Plan (NDP) 2017– 19, which fully articulates economic reconstruction and development priorities.

The private sector demonstrated impressive resilience in telecommunications, financial services, and construction. The diaspora played a major role by investing funds from abroad and returning with critical skills.

Continued political stability, focused implementation of the NDP, and sustained interest of the diaspora in key growth sectors are expected to drive growth in 2018. Development programs are being implemented to revive the education sector; initial achievements include enrolment of more children in formal primary education.

Despite progress, Somalia faces many security, political, and economic challenges that will constrain growth in 2018. Terrorism continues to threaten peace and stability in the country and its neighbors. Work to address constitutional issues needs to be accelerated, and agreement needs to be reached on a federal settlement to define the allocation of powers and decide how to best allocate economic resources and revenues.

Security reforms have not progressed as quickly as envisaged; the threat of piracy continues, which discourages increases in foreign direct investment and diaspora investments in 2018. Further progress on democratization, human rights, and the rule of law is needed, as well as strong anticorruption initiatives. Dependence on livestock and agriculture as the major source of export earnings reflects the narrow economic base.

The economy remains highly vulnerable to market shocks, particularly commodity price fluctuations, and environmental shocks. The humanitarian crisis, exacerbated by the prolonged drought, is expected to continue into 2018 and dampen economic recovery. The estimated unemployment rate among those under age 30 remains high, at 67%.

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