The African Development Bank’s 2024 Country Focus Report on Somalia comprehensively analyses the nation’s recent economic performance, medium-term outlook, and structural transformation challenges. Here are the key highlights:
Macroeconomic Performance and Outlook
- GDP Growth: Somalia’s GDP growth rebounded in 2023, driven by the agricultural sector’s recovery from drought and a boost in household consumption and investment. The GDP growth rate is projected to rise to 3.7% in 2024 and 3.8% in 2025, supported by a recovery in livestock, services, remittances, and investment.
- Inflation: Food and fuel inflation eased from 6.8% in 2022 to 6.0% in 2023 due to the deceleration of global inflation triggered by the geopolitical conflict in Ukraine.
- Debt Relief: Somalia achieved the HIPC Completion Point in 2023, qualifying for USD 4.5 billion in debt relief, improving debt sustainability from debt distress.
Structural Transformation
- Historical Growth Trends: Somalia’s average real annual GDP growth over the 1980-2022 period was 1.4%, significantly below Africa’s average of 3.1%—the prolonged civil war periods in the 1980s-2000s severely impacted economic performance.
- Sectoral Shifts: The share of agriculture in total employment slightly decreased from 29.3% to 26.3% between 2017 and 2022, while the services sector increased from 53.8% to 56%, driven by expansion in trade, telecommunications, financial, and mobile money transfer services.
- Labour and Productivity: Employment in the industry sector showed modest growth from 16.9% to 17.7%, driven by construction, manufacturing, and mining. However, structural transformation is hampered by insecurity, high business costs, financing constraints, and inadequate infrastructure.
Risks and Opportunities
- Downside Risks: Key risks to growth include climatic shocks, insecurity, low domestic revenues, and the proposed withdrawal of the African Transition Mission in Somalia (ATMIS) forces by December 2024.
- Drivers of Transformation: Potential drivers include technology adoption, industrialization, infrastructure development, human capital development, and improved business environment for the private sector.
Financial Architecture and Structural Transformation
- Financing Needs: Somalia needs significant domestic and foreign resources to achieve its SDG targets by 2030. Current domestic resource mobilization, at 3% of GDP, is insufficient to drive structural transformation.
- Reform Advocacy: The report advocates for the repurposing of Multilateral Development Banks (MDBs) and International Financial Institutions (IFIs) to provide affordable financing for transformative projects. More Special Drawing Rights (SDRs) channeled through the AfDB could benefit Somalia.
Conclusion
The 2024 Country Focus Report underscores the need for comprehensive reforms in the international financial architecture to support Somalia’s ambitious structural transformation goals. With the right investments and policy measures, Somalia can overcome its challenges and embark on a path of sustainable growth and development.
This announcement highlights the pivotal findings from the report, reflecting Somalia’s resilient economic recovery, the critical challenges it faces, and the strategic steps needed to drive its transformation in the coming years.
