Why has GDP growth been so slow in Somalia?

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Natalie Clifton

Why has GDP growth been so slow in Somalia?

Introduction to Somalia:

Somalia, formerly known as the Somali Democratic Republic, is situated in the Horn of Africa. It lies along the Gulf of Aden and the Indian Ocean, bounded by Djibouti in the northwest, Ethiopia in the west and Kenya in the southwest. Although generally arid and barren, Somalia has two main rivers; the Shebelle and the Juba.

It has had a turbulent history; governance has changed frequently and an independent Somalia has had to deal with assassination, internal conflict and famine. In 1970 Somalia was declared a socialist state, with most of the economy nationalised.

The country has battled both itself, in ongoing civil war, and neighbouring Ethiopia, among others. Civil war developed as a result of clan based military factions competing for control after the collapse of regime; War with Ethiopia was deep-rooted, and though it stemmed greatly from the desire of Somalia’s leaders to claim back the land they felt was rightfully theirs, it also carried religious undertones. The countries’ official religion is Islam, with 99.8% of the population being Sunni Muslims.

Somalia’s difficult past has lead to an ever more challenging present. In 2001 it ranked 161 out of 163 countries in the UNDP’s Human Development Index, and it has failed to provide data for the rankings several times since. The absence of a government (from Jan. 1991 to Aug. 2000), state conflict, continuing insecurity in many parts of the country and inadequate access to the most basic of services have contributed to a state where extreme poverty (less than $1 PPP) is estimated at 43%. General poverty (less than $2 PPP) covers nearly three quarters of households, and is increased to 80% in rural and nomadic populations. The extreme conditions these people are living in are among the worst in the world.

GDP in Somalia:

A result of Somalia’s complex history is poor economical growth. Economic growth is defined as a long-term expansion of the productive potential of the economy. Whilst sustained economic growth should, in theory, lead to higher living standards and rising employment, short term growth is measured by the annual change in real Gross Domestic Product (GDP). GDP is the value of all the goods and services produced by all sectors of the economy (agriculture, manufacturing, energy, construction, the service sector and the government) in the last three months. The measure is used as the principal means of determining the health of an economy – sluggish GDP growth is considered harmful.

Somalia’s GDP growth has been particularly poor over the last century. The average annual growth in real GDP per capita between 1965 and 1990 was -0.98, showing a decline in the amount produced by the country.

Although more recently Somalia has seen a slight improvement in growth, with estimations of a 2.6% growth in GDP for 2008 and the following two years, this is still poor in comparison to the rest of the word (ranking 133rd). There appears to be a direct correlation between the hardship the country has faced and the GDP figures it has been producing; GDP per capita is estimated to have declined from $280 in 1989 to $226 in 2002 as a result of the consequences of the civil conflict.

The countries surrounding Somalia have seen considerably better GDP growth and HDI rankings in recent years, scoring higher in almost every indication of development. This raises the question as to why Somalia, in particular, seems to be suffering so greatly. This essay aims to ascertain and analyse the most significant factors which have caused such poor GDP growth in Somalia, such as the civil war, and come to a conclusion as to which factor has most hindered the country.

Dependency Theory:

The dependency theory developed in the 1950s, under the guide of Raul Prebisch, as a critical reaction to the conventional approaches to economic development that emerged in the aftermath of World War II. Prebisch's initial explanation for the phenomenon was straightforward: poor countries exported primary commodities to the rich countries, which then manufactured products out of those commodities and sold them back to the poorer countries. The value added by manufacturing a usable product cost more than the primary products used to create those products. Therefore, poorer countries would never be earning enough from their export earnings to pay for their imports. Effectively, the rich countries in the West exploit the poorer Third World in order to stay rich.

Unlike countries like the UK or Germany, the states of the Third World did not start from a position where competition was minimal and no restraints existed on entering the world market; this ties their economy to a global system of production and distribution controlled by the industrialized countries of the West. Unfortunately it appears the West is unwilling to relinquish their power. During the 1980s the position of many African countries declined further, with growing foreign debt, falling aid, very little –if any – price support for primary products and a great deal of protectionism from the West; the West was united in the belief that the world economy did not need restructuring. International debt in the Third World rose fifteen times, from approximately $100billion to just over $1450billion from 1970 to 1990; a debt trap ensnaring many African states, where  the peripheral country’s economic policy is dictated by the hegemonic West. Giles Bolton sums this up when he says “Africa gets what we decide to give it, well intentioned or otherwise, especially when it comes to the aid we provide and the trade rules we want set”.

Should the dependency theory be true, Somalia could attribute part of its poor GDP growth to this.


When African’s first gained independence they had little education at all; when Burundi gained independence there were only 2 people in the whole country who had a degree. Most African’s hadn’t received any school-based education at all. Somalia has the lowest primary school enrolment in the world, at 22% and the years of schooling a Somali child could expect if they were born today is only 1.8.

Education and its effect through labour quality are generally found to be the most important contributors to economic growth. Studies have shown it to contribute 15-25% of growth in GDP per capita, and up to 90% in improving the quality of the labour force. The theory of human capital considers education as an investment that makes individuals more productive and focuses on pecuniary gains. If education (and training) enables individuals to produced more efficiently it can lower the costs to produce an additional output (marginal costs), which would shift the supply curve.

However Somalia has not invested in education, and how only has this caused potential loss of GDP growth, but an uneducated workforce means that a high percentage of the labour force must find employment in the primary sector as they are not qualified enough to produce in the secondary or tertiary markets.

Primary product dependency:

Primary product dependency is measured by the percentage of a country’s merchandise exports that are primary products. Agriculture is Somalia’s most important sector, with livestock accounting for approximately 60% of GDP and more than 50% of export earnings. The country produces bananas, corn, coconuts, rice and sheep to name a few.

There are vast economic disadvantages to being primary product dependent. Commodities are subject to price volatility. The cobweb theory, introduced by Nicholas Kaldor, is an economic theory which explains why prices might be subject to periodic fluctuations in certain markets.  It is based on a time lag between price and output decisions; this year’s price determines next year’s output. Assuming that the market was in equilibrium, if there was a bad harvest output would fall. According to the laws of supply and demand this would result in the commodity fetching a higher price (as it is scarcer). On the basis of this higher price, famers would plant more in year two, but again, due to the laws of supply and demand this leads the price to fall; and so it goes on, with the farmers basing what they plant on the previous year’s harvest. The cobweb is unstable because the market price is moving away from the market equilibrium. Overspecialisation in agriculture can therefore be detrimental to growth, as investment in such products is risky due to their changes in price, especially since the sector is subject to exogenous shocks. The low price elasticity of demand for these products mean that any increase in supply leads to a greater  percentage fall in price than output – therefore the revenue of producing a primary product tends to fall as output increases.

Another drawback of being primary product dependent is that is stops diversification against risk. Locking a country into primary activity may deny it the possibility of long term growth, particularly since the West produce their own primary products (which can strain relationships between Third World countries and the richer West). If you’re European you’re paying to subsidise every cow in the European Union at €2.50 a day, whilst 300million Africans live on less that €1 a day. The exemplifies the way famers must be price takers in this industry – marginal productivity analysis determines how much the take-it-or-leave-it offers from Western firms are worth, and if the Somali farmers choose to leave it and hold out for a better price? Well the West will use their buffer stocks to supply themselves with food, and the farmer and his family will be left to starve.

The Prebisch-Singer hypothesis argues that there will be a decline in the terms of trade of primary products due to factors like low income elasticity. This would result in a net flow of income from commodity producers to manufactured goods exporters. As world incomes rise the demand for goods with a high income elasticity of demand, such as high quality manufactures, will rise faster than the demand for goods with a low income elasticity of demand, such as agricultural products. This suggests that the price of agricultural goods will fall relative to the price of manufactured goods. A country specialising in exports of agricultural goods will then experience a fall in its terms of export prices falling relative to import prices. This then implies that for every ton of cocoa (or any other primary product) exported the developing country will be able to import a smaller quantity of other goods. This problem is compounded because primary products tend to be traded under conditions approximating perfect competition; primary products are homogenous, with many buyers and sellers and no barriers to entry or exit. Manufactured goods, meanwhile, tend to be produced under more monopolistic conditions. Any technological innovation is likely to result in lower prices for the competitive primary producers and higher prices for the monopolist producers of secondary products. This dynamic then further reduces the terms of trade of developing countries.

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As previously stated, Somalia has had a difficult infancy. It was first inhabited in the 7th century by Arab tribes, but has experienced several changes in leadership since. In 1887 Britain proclaimed protectorate over the diminished area of Somaliland (since France had required the area later to come Djibouti). The following year an Anglo-French agreement was made defining the boundary between Somali possessions of the two countries; this has remained in place despite the disorder that has occurred since. Britain’s first occupancy of the country was relatively short-lived, being invaded by the Italians in 1940, only to take back ...

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