How does Somalia function at all?
- 26 January 2011
- From the section Africa
Common sense dictates that security and stability are the necessary preconditions to economic development.
Since 26 January 1991, most of Somalia has had neither, yet the economy has not only been resilient, some sectors have shown remarkable growth.
But investment is very risky and long-term strategic planning is impossible given the political situation.
While business people may enjoy a no-tax and no-regulation environment, many argue that a stable government would allow for sustainable economic growth.
The main markets of the Somali capital, Mogadishu, are busy places, giving the impression that business is brisk.
It is not just the daily needs of food and clothing that are available. The latest electronic gadgets can also be bought.
The large Somali diaspora - estimated by the United Nations at around a million people - plays a crucial role in getting these goods to the market.
"One of the key things that have allowed business to carry on is the links that Somalis have with the diaspora across the world," says Roger Middleton, a researcher into Somali affairs at the UK think-tank Chatham House.
"Somalis living in Dubai, for example, will act as middlemen between their colleagues in Mogadishu and perhaps the markets in China where they're buying the goods from."
Somalia, though, is not just receiving traded goods - it also has a thriving livestock sector.
Mr Middleton says that it is the country's biggest employer, giving around 40% of the workforce a job.
He argues that the demand for meat has grown in neighbouring Kenya and nearby Saudi Arabia, and traders are willing to cross dangerous territory in order to meet that demand.
It's good to talk
Somalis, though, are not just traders.
The business success story of the last 20 years has been the growth of the mobile telecommunications sector.
Somali telecoms expert Ahmed Farah says the first mobile telephone mast went up in Somalia in 1994, and now someone can make a mobile call from anywhere in the country.
There are nine networks to choose from and they offer services from texting to mobile internet access.
All this required investment in infrastructure, but, as Mr Farah argues, Somali investors were betting on the need for people to stay in touch in times of crisis.
"The Somali business people who established these private telephone companies took a risk," Mr Farah says.
"They invested their money in Somalia, instead of a less risky environment, they got a return and the sector is growing every day."
The economy in Somalia, then, persists in the face of a very challenging business environment.
But the economy would flounder without remittances.
Ismail Ahmed, the Somali founder of the remittance company WorldRemit, estimates that $2bn (£1.3bn) is sent back to Somalia every year.
In the late 1990s, the UN found that remittances amounted to 67% of the Somali economy and that proportion is likely to be bigger today.
"That means that the Somali economy is more reliant on remittances than any other in the world," Mr Ahmed says.
He thinks that 40% of households in Somalia rely exclusively on money from abroad.
"It is the lifeline of the whole economy," he says.
On the one hand, we can marvel at the fact that business does continue in Somalia, on the other hand things could be a lot better.
The lack of taxation and regulation may mean a certain amount of freedom from interference.
But business people have to pay security firms to ensure the safety of their goods, and need to pay off different factions if they want to do any trade.
The risky situation does not deter all investment, but it would be a lot higher if a stable authority was in place.
Mr Farah thinks that mobile phone operators would welcome an effective government.
"They will have security, they will have stability and they will be able to do their business smoothly," the telecoms expert says.
"So without a doubt, the telecom industry in Somalia needs a government."
But with the UN-backed government struggling to assert its authority, it is not clear when that day will come.