COLLECTION OF POLICY NOTES FOR
THE NEW SOMALI GOVERNMENT
Unlocking Somalia’s Potential to
Stabilize, Grow and Prosper
June 2022
i
Report No: AUS0002912
SOMALIA POLICY NOTES
FOR THE NEW GOVERNMENT
Unlocking Somalia’s Potential to
Stabilize, Grow and Prosper
June 2022
Macroeconomics, Trade and Investment
© 2017 The World Bank
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ii
CONTENTS
Acknowledgements ........................................................................ iv
PILLAR 1: JOB CREATING PRIVATE INVESTMENTS .... 16
Abbreviations ..................................................................................... vi
Macro Stability and Debt Relief Policy Note .. 17
Federalism and State Stability Policy Note .. 26
OVERVIEW ............................................................................................. 1
Public Financial Management Policy Note .. 30
A. Introduction ...................................................................... 1
Trade and Integration Policy Note ................ 36
B. Context – an urgent need to create jobs
National and Regional Roads
and stimulate growth ................................................ 1
Connectivity Policy Note ...................................... 44
C. Framework for Organizing the
Energy Sector Policy Note ................................. 48
Policy Notes ...................................................................... 4
Financial Sector Policy Note ............................. 55
D. Pillar 1: Job creating private investments
Information and Communications
Supporting growth through maintaining
Technologies Sector Policy Note ................... 63
macroeconomic stability and advancing
Business Environment Policy Note ............... 68
the debt relief process .......................................... 4
Moving the federalism agenda forward
PILLAR 2: CONNECTING WORKERS TO JOBS AND
through smaller agreements that
SUPPORTING RESILIENCE ............................................................ 72
support long-term state-building
Education Sector Policy Note .......................... 73
objectives ....................................................................... 5
Health Sector Policy Note .................................. 78
Developing economic corridors through
Gender Policy Note ................................................. 86
improved connectivity and better
Social Protection Policy Note ........................... 95
conditions for private sector growth .......... 6
Water Resource Management Policy Note ... 100
E. Pillar 2: Connecting workers to jobs and
Disaster Risk Management and
supporting resilience .................................................. 9
Resilience Policy Note ........................................... 108
Investing in human capital to promote
productivity and an inclusive
TOWARDS THE FUTURE DRIVERS OF GROWTH .................. 111
growth process .......................................................... 9
Urbanization Policy Note ................................................. 112
Building resilience through improving
Crop, Agriculture and Livestock Policy Note ...... 118
water security and disaster risk management .. 12
Fisheries Policy Note .......................................................... 123
F. Towards the future drivers of growth
Petroleum Sector Governance Policy Note ........ 128
– leveraging urbanization, upgrading
Selected World Bank Group Publications ...................... 135
and diversification ........................................................ 13
G. Conclusion and Summary Actions .................... 14
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
ACKNOWLEDGEMENTS
The Collection of Policy Notes was prepared by a multi-disciplinary World Bank Group
team led by Natasha Sharma (Senior Economist, EAEM1) under the guidance of Vivek Suri
(Practice Manager, EAEM1), Kristina Svensson (Country Manager, AEMSO), Amena Arif
(Country Manager, CAFE1), Asad Alam (Regional Director, EAEDR), Keith Hansen (Country
Director, AECE2) and Jumoke Jagun-Dokunmu (Director, CAFEO). The sector policy notes
were prepared by the following authors:
POLICY NOTE TEAM
Overview of the policy notes Natasha Sharma and Stephen Ling
Under the guidance of Vivek Suri
Macroeconomic stability and debt relief Natasha Sharma and Phil Schuler
Under the guidance of Vivek Suri
Federalism and state stability Mohamud Yasin Jama, Zubair Bhatti
Under the guidance of Nicola Smithers
Public financial management Andreas Henrik Fiebelkorn, Jiwanka B. Wickramasinghe and Frederick Yankey
Under the guidance of Nicola Smithers
Trade and integration John Randa, Pierre Sauve and Ephraim Kebede
Under the guidance of Vivek Suri
Electricity Patrick Balla and Chiara Rogate
Under the guidance of Erik Magnus Fernstrom
Roads Gylfi Palsson and Adam Diehl
Under the guidance of Almud Weitz
Financial institutions Asta Bareisaite, Sameer Goyal, Yara Esquivel, Juan Andres Cartwright Ramon, Neema
Mwingu and Sonia Plaza
Under the guidance of Niraj Verma
Information, communications and Isabella Hayward, Sitora Sultanova and Clement Gevaudan
telecommunications Under the guidance of Isabel Neto and Amena Arif
Business environment Taneem Ahad, Sitora Sultanova and Elizabeth Kibaki-Obiero
Under the guidance of Amena Arif
Education Huma Ali Waheed, Shawn Powers, Ousman Abdulahi Ali and Roberta Malee Bassett
Under the guidance of Muna Salih Meky
Health Bernard Olayo, Naoko Ohno, Carmen Carpio, Annie Liang, and Jessica Leete Werner Flannery
Under the guidance of Francisca Ayodeji Akala
Gender Verena Phipps, Tanya Lynn D’Lima and Helena Hwang
Under the guidance of Helene Carlsson Rex
Social protection Afrah Alawi Al-Ahmadi and Nadia Selim
Under the guidance of Paolo Belli
iv
ACKNOWLEDGEMENTS
POLICY NOTE TEAM
Water resource management Chantal Richey
Under the guidance of Catherine Signe Tovey
Disaster risk management Haris Khan and Benjamin Joseph Kushner
Under the guidance of Peter D. Ellis
Urbanization Makiko Watanabe
Under the guidance of Peter D. Ellis
Agriculture James Muli Musinga and Sonia Plaza
Under the guidance of Shobha Shetty
Fisheries Julien Million, Miguel Angel Jorge and Jacqueline Alder
Under the guidance of Iain G. Shuker
Petroleum Fiona Davies
Under the guidance of Nicola Smithers
Valuable comments were received from peer reviewers: Hugh Riddell (Country Manager,
AEMMW), Gael Raballand (Practice Manager, EAWG1), Guillemette Jaffrin (Program Leader,
EAEDR) and Yutaka Yoshino (Lead Country Economist, ESADR). Support was provided by
Program Leaders: Allen Dennis (Program Leader, Equitable Growth, Finance, and Institutions),
Anne Margreth Bakilana (Program Leader, Human Development), Peter Ngwa Taniform
(Senior Transport Specialist, Program Leader) and Ragini Praful Dalal (Sector Leader,
Sustainable Development). Logistics support was provided by Erik Maina (Team Assistant,
AEMSO). Editing assistance was provided by Barbara Balaj (Consultant, EECG1) and design
work was undertaken by Cybil Maradza (Consultant, EAEM1).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
ABBREVIATIONS
AfCFTA Africa Continental Free Trade Area FCV Fragility, conflict and violence
AfDB African Development Bank GFS Government Finance Statistics
AML/CFT Anti-money laundering / combatting of financing GER Gross enrollment rate
against terrorism GCC Gulf Cooperation Council
ACH Automatic clearing house HIPC Heavily Indebted Poor Countries initiative
BRA Banadir Regional Administration HSDGs High-speed diesel fuel powered generators
CO2 Carbon dioxide HoA Horn of Africa
CBS Central Bank of Somalia HMIS Human resource management information systems
CSA Climate-smart agriculture ECF Extended Credit Facility
COMESA Common Market for Eastern and Southern Africa IUU Illegal, unreported and unregulated fishing
CBR Correspondent Banking Relationship IOTC Indian Ocean Tuna Commission
DALYs Daily Adjusted Life Years ICT Information and communication technologies
DMU Debt Management Unit IFT Instant funds transfer
ID Digital identification IMCC Inter-Ministerial Concessions Committee
DRM Disaster risk management IDPs Internally displaced people
EGMA and Early Grade Math and Reading Assessments IFRS International Financial Reporting Standards
EGRA IFIs International financial institutions
EAPP East Africa Power Pool IFRS International Financial Reporting Standards
ESPs Energy service providers IMF International Monetary Fund
ERP Enterprise Resource Planning System JET Jobs and Economic Transformation
ESI Electricity Supply Industry KYC/CDD Know Your Customer / Customer Due Diligence
ESPs Electricity service providers MPAs Marine Protected Areas
EPHS Essential package of health services MW Megawatts
EEZ Exclusive Economic Zone MOU Memorandum of Understanding
EIIT Extractives Industries Income Tax MFIs Microfinance institutions
FEWS NET Famine and Early Warning Systems Network MSMEs Micro, small and medium enterprises
FGS Federal Government of Somalia MENA-FATF Middle East and North Africa Financial Action
FMS Federal Member States Task Force
FMoH Federal Ministry of Health MoCI Ministry of Commerce and Industry
FiT Feed in Tariffs MDAs Ministries, Departments, and Agencies
FGM/C Female genital mutilation/circumcision MoF Ministry of Finance
FHWs Female Health Workers MoEWR Ministry of Energy and Water Resources
FGC Financial Governance Committee MoEM Ministry of Energy and Minerals
FMFF Finance Ministers Fiscal Forum MoLSA Ministries of Labor and Social Affairs
IGFF-TC Fiscal Federalism Technical Committee MPMR Ministry of Petroleum and Mineral Resources
FSNAU Food Security and Nutrition Analysis Unit MNOs Mobile network operators
vi
ABBREVIATIONS
ML/FT Money Laundering and the Financing of Terrorism RMET Resource mapping and expenditure tracking
MTBs Money transfer bureaus SACCOs Savings and Credit Cooperative Organizations
MCS Monitoring Control and Surveillance SRGBV School-related, gender-based violence
M&E Monitoring and Evaluation SP / SPSC Social protection / Social Protection
MCS Monitoring control and surveillance Steering Committee
IORA Indian Ocean Rim Association FSFA Somalia Federal Fisheries Authority
NCA National Communications Authority SFMIS Somali Financial Management Information System
NDC Nationally determined contribution SHIIP Somalia-Horn of Africa Infrastructure
NDMP National Disaster Management Policy Integration Project
NPS National Payment System SoIXP Somali Internet Exchange Point
NRA National risk assessment SOM-CERT Somalia national cyber emergency response team
NTFC National Trade Facilitation Committee SPA Somalia Petroleum Authority
NWRS National Water Resources Strategy SOS Somali shilling
NDP9 Ninth National Development Plan SWALIM Somalia Water and Land Information Monitoring
NCDs Non-communicable diseases SWIOFC South West Indian Ocean Fisheries Commission
OAG Office of the Auditor General SDR Special Drawing Rights
ODA Official development assistance SSA Sub-Saharan Africa
ONA One Network Area STRs Suspicious transaction reports
PSMP Power Sector Master Plan TPT Teacher Proficiency Testing
PSA Production-sharing agreements USR Unified Social Registry
PFM Public financial management UNICEF United Nations Children’s Fund
PPPs Public-private partnerships VAT Value-added tax
RTGS Real-time gross settlement VSLAs Village Savings and Lending Associations
RE Renewable energy WBL Women, Business and Law
RMNCAHN Reproductive, Maternal, Newborn, Child, and WHO World Health Organization
Adolescent Health and Nutrition Services WFP World Food Programme
R&D Research and development WTO World Trade Organization
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
OVERVIEW
A. INTRODUCTION nomads are considered poor. Poverty extends beyond the
lack of money. Almost nine out of ten Somali households
1. The arrival of a new government provides an have insufficient access to electricity, education, or water
opportunity to reinvigorate the reform agenda to and sanitation. Nomadic populations suffer the most,
deliver inclusive growth for the Somali people. Since while urban dwellers are relatively better off.
the establishment of the Provisional Constitution in 2012,
Somalia has made commendable progress on many 3. Accelerating job creation, particularly for women
fronts. Macroeconomic stability has been maintained, and youth, is an urgent challenge. Just over 50 percent
high levels of indebtedness are being addressed of the Somali working age population are actively
through the Heavily Indebted Poor Countries (HIPC) participating in the labor market. Women and youth fare
initiative, several sector laws and institutions have been worse, with labor force participation rates of 43 percent
established, and a poverty reduction strategy paper has and 39 percent respectively (Figure 1).² Productivity in
been developed – the ninth National Development Plan Somalia is low, as output per worker is less than a quarter
(NDP9). However, much remains to be done and the of the sub-Saharan African (SSA) average (Figure 2).
time has come to mark the next milestone in Somalia’s Therefore, simply having a job is not enough. What
development trajectory through advancing reforms matters is having a job that is good enough to escape
anchored in the HIPC process. The objective of the poverty and provide a meaningful income, which can also
collection of policy notes is to provide sector-specific help to build cohesion and stability.³
policy advice for the leadership of the new government,
drawing on the expertise of the World Bank Group. This 4. Somalia’s relatively young population could
overview chapter synthesizes the advice across the sector support an acceleration in growth if there are
policy notes and is organized in four sections. The first sufficient jobs available and they have the required
section outlines the current context. The second section skills. Just under 30 percent of the Somali population is
presents the framework for organizing the policy notes. between 15 and 29 years old. However, two in five young
The third section summarizes the advice, and the fourth people are not in employment, education, or training,
section concludes. much higher than the SSA average of about 20 percent.⁴
An estimated 161,000 workers are expected to seek jobs
B. CONTEXT – AN URGENT NEED TO CREATE JOBS each year on a net basis through 2025. Developing job
AND STIMULATE GROWTH opportunities for new labor market entrants and ensuring
they have the skills available is critical. Currently, health
2. Poverty in Somalia is unacceptably high. An and education outcomes are low, with substantial gender
estimated 69 percent of the Somali population lives disparities and regional inequities, which puts Somalia
below the poverty line of US$1.90 a day.¹ Almost three- at a disadvantage. Healthier children are more likely to
fourths of the population in rural areas, settlements succeed in school, have higher future earnings and be an
for internally displaced people (IDPs), Mogadishu, and employed wage earner.⁵
¹ Measured at [2011] prices adjusted for purchasing power parity. Somali High Frequency Survey (SHFS), World Bank, 2017.
² Improving Access to Jobs for the Poor and Vulnerable in Somalia. World Bank 2020. Washington, DC.
³ An integrated framework for jobs in fragile and conflict situations. Washington, D.C.: World Bank Group.
⁴ Improving Access to Jobs for the Poor and Vulnerable in Somalia. World Bank 2020. Washington, DC.
⁵ In Somalia, having a higher education level is correlated with being an employed wage earner, and is associated with higher productivity in
established and micro businesses, Somalia Country Economic Memorandum, World Bank, 2021, Washington DC.
1
OVERVIEW
Figure 1: Population Pyramid Figure 2: Real GDP per Worker (average for 2012 - 19)
100 8,000
7,000
80
6,000
% of working population
60 5,000
4,000
40 3,000
2,000
20
1,000
0 0
Burundi
Madagascar
CAR
Ethiopia
Somalia
DRC
Malwai
Liberia
Mozambique
Niger
guinea-Bissau
Sierra Leone
Rwanda
Tanzania
Togo
Mali
Burkina Faso
HIPC
Chad
guinea
Uganda
Gambia, The
Kenya
Zimbabwe
Benin
Cameroon
Ghana
Zambia
SSA
Cote d’Ivoire
Comoros
Senegal
Mauritania
FCV
Congo, Rep.
Female Male Age Age
15-24 25-64
Labor force participation: Inactive
Labor force participation: Active
Source: World Bank (2017–2018). Source: World Bank Development Indicators and World Bank staff estimates.
5. Supporting the growth of the economy is supported by remittances, is the main contributor to
fundamental for creating jobs. Between 2014 economic growth. Jobs are dominated by low-value
and 2021 real per capita growth rates averaged zero services in sectors such as retail and commerce.
percent. Growth has repeatedly been interrupted by Somalia currently imports basic commodities and runs
climate-related shocks such as floods, droughts, and a trade deficit estimated at around 65 percent of GDP,
more recently a locust’s infestation, in addition to the which may increase if commodity prices such as wheat
COVID-19 pandemic and regular insecurity incidents and fuel continue to rise in the context of the Ukraine-
(Figure 3). Private consumption, which is partly Russia conflict.
Figure 3: Economic Growth Rates – Subject to Frequent Shocks
5,0
4,0
Real GDP Growth (%)
3,0
COVID-19, floods
and locusts
2,0
Provisional Constitution Extreme
adopted in 2021 drought Economic recovery
1,0
projected
0
(1,0)
2014 2015 2016 2017 2018 2019 2020 2021 2022f
Source: Federal Government of Somalia, International Monetary Fund (IMF) and World Bank staff analysis.
6. Increasingly challenging global and regional COVID-19 pandemic, the Russian invasion of Ukraine and
conditions further emphasize the importance of climate-related disasters. The global economic outlook
Somalia enhancing economic resilience. The global is tilted to the downside due to geopolitical tensions,
growth momentum has slowed amid the continuing rising prices, growing financial instability, continuing
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
supply strains and worsening food insecurity. These instability. However, decisions on the federal model
risks underscore the importance of Somalia enhancing were deferred to the Constitutional Review Process,
economic resilience to bolster food security, particularly and further pushed to the 11th Parliament. To deliver
in an environment where there are competing demands public goods such as security, health and education
for official development assistance (ODA), which can limit services, decisions need to be made on how functions
international support available to Somalia in times of crisis. will be allocated at different levels of government
Strengthening cooperation with regional counterparts, (federal, state, and municipal or district), and how
both in the Horn of Africa and the Gulf Cooperation resources can support implementation. Strengthening
Council countries can help to stabilize security conditions public systems to deliver services can also help to
and deepen trading relationships. increase citizen’s trust in the government. Advancing
discussions on federalism can help to improve the
7. Climate change may increase the frequency stability of the state, which can enhance the overall
of shocks and introduce a multitude of more environment for doing business.
gradual changes, affecting growth and livelihoods.
Somalia is currently amid a severe drought with famine 9. With admirable natural wealth assets, a strategic
conditions prevalent in certain regions.⁶ Looking ahead, location, a young population and a dynamic private
rainfall variation in Somalia is projected to increase, sector, there is tremendous potential for Somalia
which is expected to lead to more frequent incidences to stabilize, grow and create jobs. Somalia’s natural
of drought and flooding. As capacity for water resource wealth assets include land, rivers, forests, mineral
management is at a nascent stage and institutions for assets, and marine resources.⁸ There is the potential to
disaster management response need to be developed, develop new sectors such as fisheries to diversify exports
these extreme weather events are associated with and sources of nutrition, as well as upgrade climate
damaging exports of livestock, diminishing the smart agricultural practices. Connections to numerous
livelihoods of pastoralists, internal displacement and submarine cables offers the possibility to expand digital
the deterioration of agricultural value chains, as well as connectivity within Somalia and beyond. In Somalia’s
increase flood risk in rapidly expanding cities.⁷ Adapting rapidly urbanizing context, trade can be enhanced
to and mitigating the effects of climate change requires between rural and urban areas, as well as with regional
action at multiple levels, from supporting households and international trading partners. However, enabling
to cope with shocks and mainstreaming climate-risk infrastructure needs to be in place, combined with a
analysis in routine investment decisions and sectoral sound regulatory environment, which is increasingly
planning, to encouraging long-term growth of less climate-informed and climate-smart. Improving human
climate-dependent sectors. capital can help to equip Somalis with the skills needed to
improve productivity and respond to the opportunities of
8. Advancing the agenda on federalism can help to an evolving private sector. Implementing policy reforms
improve the stability of the state. The Provisional and investments to improve the stability of the state, as
Constitution set the foundation for a federal structure, well as strengthening human and physical capital could
to address the historical causes of conflict and support growth, job creation and poverty alleviation.
⁶ Somalia: Drought Response and Famine Prevention Situation Report No. 7, United Nations Office for the Coordination of Humanitarian Affairs,
May 2022.
⁷ Ogallo, L., Omondi, P. O., Ouma, G., and Wayumba, G. (2018). Climate Change Projections and the Associated Potential Impacts for Somalia.
January 2018, American Journal of Climate Change 07(02):153-170
⁸ Somalia Systematic Country Diagnostic, World Bank, 2018, Washington DC.
3
OVERVIEW
C. FRAMEWORK FOR ORGANIZING THE POLICY NOTES The second pillar of the JET framework focuses on
how workers can improve their productivity through
10. The policy notes are organized in line with strengthening human capital (health and education),
the Jobs and Economic Transformation (JET) gender and inclusion, as well as building resilience. Given
framework. The first pillar of the JET framework Somalia’s potential to develop new sectors to support
considers how job-creating private investments can be growth and job creation, a section has been devoted
fostered and includes issues such as macroeconomic to future growth drivers, which considers urbanization
stability, fiscal federalism, trade, infrastructure, finance and leveraging natural resources such as agriculture,
and digital technologies, and the business environment. fisheries, and petroleum.
Figure 4: Framework for Organizing the Collection of Policy Notes
RAISING INCOMES AND PROVIDING OPPORTUNITIES FOR MORE SOMALI WOMEN, MEN AND YOUTH
Economic transformation
Job creating More
Leveraging urbanization and natural resources
private investment productive workers
(agriculture, fisheries, and petroleum)
Pillar 1: Connecting to and Creating Markets Pillar 2: Building capabilities and resilience
• Macro stability and debt relief • Human capital: education, health, gender, social protection
• Fiscal federalism and public financial management • Building resilience: water management, disaster risk management
• Supporting economic corridors and the business environment
Source: WB staff compilation.
D. PILLAR 1: JOB CREATING PRIVATE INVESTMENTS buffers during shocks. Therefore, in times of crises, there is
a reliance on external support. The HIPC process provides
Supporting growth through maintaining macroeconomic a framework for engaging in economic reforms, to
stability and advancing the debt relief process strengthen macroeconomic stability, and enhance fiscal
and debt management. Somalia reached the HIPC Decision
11. Growth will need to be supported by maintaining Point milestone in March 2020 and is currently in the HIPC
broad based macroeconomic stability, which requires interim period. Upon reaching the HIPC Completion Point
advancing economic reforms anchored in the HIPC milestone, Somalia will qualify for full and irrevocable debt
process. Despite Somalia’s susceptibility to shocks, policy relief, which offers an opportunity to access new resources
instruments are not available to address crises. The central and provides a signal to the private sector on the country’s
bank lacks monetary policy instruments, and high levels readiness to do business. To reach the HIPC Completion
of dollarization support price stability. The government Point, Somalia must continue to implement the NDP9,
lacks the fiscal space to use spending to develop economic stay on track with the IMF’s Extended Credit Facility (ECF)
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
program and complete all the remaining HIPC floating tariff duty rates have been harmonized and applied, the
completion point triggers.⁹ next stage is to issue common reference value tables.
So that citizens in states without a major port are not
12. To enhance fiscal space for development priorities, at a disadvantage, the FGS and FMS need to agree on
the government needs to raise more revenue how resources can be shared following a rules-based
and strengthen expenditure controls. The Somali approach that considers equity, capacity to spend, and
authorities should maintain the commitment to avoid accountability of resources. Initial proposals on how to
running a budget deficit and to make timely payments share revenues from trade-related taxes at a technical
supported by the fiscal buffer. The Federal Government of level have been discussed. In the fisheries sector, an
Somalia (FGS) and Federal Member States (FMS) should interim agreement has been reached between the FGS
continue efforts to improve tax policy focusing on the and FMS on how revenues from licenses can be shared,
harmonization of fiscal regimes for customs and inland although this has not been fully implemented. Developing
revenues which can also advance the federal agenda. and implementing interim agreements can support trust-
Strengthening controls over the wage bill should be a building between the regions.
priority, particularly regarding ad hoc personnel costs
and allowances. Since wage bill expenditures account for 14. Going further, the FGS and FMS need to
more than half of public expenditures, improving controls decide how resources will be allocated according
is critical for enhancing fiscal sustainability. Upon reaching to the functions undertaken by different levels of
the HIPC Completion Point, there may be opportunities government, utilizing the institutions that have
to borrow to finance new investments in human capital been established to support federalism. As the federal
and physical infrastructure. The FGS can take steps now model evolves, functional assignments could consider
to develop an adequate legal framework to support the role of the FGS, the FMS, and potentially districts
borrowing and strengthen capacity to manage fiscal and municipalities. The focus should be on establishing
risks, particularly if the federal and state governments functional assignments for big-ticket expenditure
enter public-private partnerships and new concessions items such as security and gradually moving towards
arrangements. service delivery sectors. The Inter-Governmental Fiscal
Federalism Technical Committee (IGFF-TC) can be
Moving the federalism agenda forward through leveraged to support discussions on federalism and
smaller agreements that support long-term state- inform decisions taken by the Finance Ministers Fiscal
building objectives Forum.¹⁰ Strengthening dialogue and trust between the
regions can pave the way towards reaching agreements
FISCAL FEDERALISM on contentious issues that need to be resolved to finalize
the constitution.¹¹
13. Advancing interim federal agreements can
support a conducive environment for reaching PUBLIC FINANCIAL MANAGEMENT
agreements on power and resource sharing. Somalia’s
emerging federal system is characterized by inequities in 15. The FGS and FMS need to improve the
access to resources. States that have a major port (such coherence of legal frameworks for public financial
as Mogadishu, Bosaso or Kismayo) can collect a higher management, as well as improve the systems for
share of revenues, mainly from trade-related taxes. While planning, spending, and accounting. Progress has
⁹ Remaining HIPC Completion Point triggers include the enactment of the Extractive Industry Income Tax (EIIT) Law, the Data Privacy Law, and the
Electricity Act.
¹⁰ The Finance Ministers Fiscal Forum (FMFF) is a platform financed by the Recurrent Cost and Reform Financing (RCRF) program, which brings
finance ministers together to discuss and agree inter-governmental priorities.
¹¹ Examples of contentious issues that need to be resolved include the basis for agreeing citizenship, if a parliamentary or a presidential system should
be adopted, the role of the judiciary, the security architecture (including the financing, size, and composition of the Somali National Army and
regional police) and the status of the Banadir and Mogadishu Regional Governments.
5
OVERVIEW
been made to develop a foundation for PFM. Both the export partners beyond the Gulf Cooperation Council
FGS and the FMS have passed modernized PFM Acts. (GCC) countries. Regional trade agreements such as the
However, legislation needs to be coherent across the East Africa Community, the Common Market for Eastern
regions, particularly concerning intergovernmental and Southern Africa, and the African Continental Free
fiscal relations, which can be addressed through the Trade Area offer Somali producers important export
regulations to the PFM Acts for the FGS and the FMS. opportunities. Advancing a national trade strategy
Budget preparation and execution processes at the that supports Somalia’s trade-related institutions,
FGS and FMS need to be strengthened with the aim harmonization of customs and border management
of enhancing fiscal sustainability. Improving revenue processes and the strengthening of producers’ capacity
forecasting, commitment and payroll controls for to meet importers’ sanitary and phytosanitary measures
example could help to ensure that expenditures are kept can help develop regional integration. Over time, as
in line with available resources. Enhancing transparency Somalia strengthens its processes for implementing
and accountability of public finances for both the FGS a single tariff schedule and building trade institutions,
and FMS could help to build trust in state institutions. there could be possibilities to further ambitions to join
While there have been initial steps to harmonize the the World Trade Organization.
chart of accounts across the FGS and the FMS, further
efforts are required to establish the amounts and 17. Somalia’s domestic market is characterized
sources of financing for fiscal transfers from the FGS by fragmentation which hampers trade and
to the FMS. Strengthening governance of high-value competitiveness. Somalia’s domestic market is economically
contracts is critical and requires gradual institution- fragmented, with high price differentials across the regions.
building with the support of the Financial Governance Fragmentation of the domestic market raises costs for
Committee.¹² Enacting the Federal Audit Bill would producers and dampens competitiveness. Addressing the
support the independence of the Office of the Auditor drivers of fragmentation requires tackling illegal checkpoints
General (OAG). Other priorities include strengthening through improved governance, as well as high transportation
internal audit functions and publishing a citizen’s guide costs particularly in the south and central regions
to the budget. (Figure 5). Limited competition in the trucking industry,
particularly in the South-West and Central regions,
Developing economic corridors through improved contributes to higher transportation costs which is a
connectivity and better conditions for private sector growth barrier to competitiveness. Encouraging competition in
the trucking sector could help to ensure that investments
TRADE AND INTEGRATION in public infrastructure can support a reduction in
transportation costs.¹³ Strengthening infrastructure in
16. Somalia’s location offers substantial advantages, strategic corridors through improved access to a reliable
with ports that are close to major international road network and power could support trade within
routes, which can support the diversification of Somalia, the region and beyond.¹⁴
¹² The Financial Governance Committee (FGC) is a high-level advisory committee comprising senior members of the FGS and international
representatives. The FGC is a forum for dialogue and confidential advice on strategic and sensitive financial governance issues, covering fiscal
issues, contracts and concessions, natural resource management, and central bank governance.
¹³ Somalia Country Economic Memorandum, World Bank, 2021, Washington DC.
¹⁴ Four priority corridors have been identified in the HoA, of which three include connections in Somalia, such as the Kismayo, Lamu and Mogadishu
corridor; the Berbera and Djibouti corridor; and the Mogadishu, Berbera and Bossasso corridor. Horn of Africa Regional Economic Memorandum.
6
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Figure 5: Cost Structure for Long-Distance Transport by Expense Category (US cents per Tkm)
16,00
14,00
12,00
10,00
8,00
6,00
4,00
2,00
-
CORRIDOR 1 CORRIDOR 2a CORRIDOR 2b CORRIDOR 3 CORRIDOR 4 CORRIDOR 5a CORRIDOR 5b CORRIDOR 6
Berbera Tog Berbera Berbera Bosaso Mogadishu Mogadishu Mogadishu Kismayo
Wajale Lascanod Buhotle Beledweyne Beledweyne Bele Xawo Dolow Dobley
Capital cost Annual fixed maintenance Annual salaries Fuel Variable maintenance
Allowances Checkpoints and roadblocks
Source: World Bank, 2021.
18. Somalia can also work towards upgrading and average solar radiation (6.4 kilo-watt hours per square
diversifying its export base. Improving value chains, meter per day [kWh/m2/day]) is the highest of all HoA
for example in sectors such as agriculture and fisheries, countries and one of the highest globally. Offshore wind
can help to diversify the types of products that Somalia potential at over eight meters per second (m/s) is among
can trade. Upgrading value chains will require a stable the highest on the African continent.¹⁵
security situation, supporting investments (for example
in cold chains and infrastructure), and improved technical 20. Having an adequate regulatory framework in
skills—including in areas of food safety and animal health. place can help to reduce fragmentation and support
Measures to support the business environment could the growth of the power sector. Somalia has already
include public-private dialogue and sharing information drafted an Electricity Law, which will support renewable
with investors, for example by rolling out the trade energy generation. The priority is to enact the Electricity
information portal to support access to trade procedures, Law, which is also a HIPC Completion Point trigger.
documents, and fees requirements. Amending the existing licenses of energy service providers
(ESPs) to improve their operational, commercial, and
POWER environmental performance standards could help to
operate existing units more efficiently. Joining the Eastern
19. There is substantial potential for Somalia Africa Power Pool within the next 100 days could allow for
to increase renewable energy supply which is trade with cheaper energy providers in the medium term.
affordable and efficient. Today’s power sector Adopting a least-cost national electrification plan and
is characterized by oligopolistic mini grids mainly establishing a national electricity regulator could support
powered by diesel generators, with high technical and the implementation of the new institutional framework,
commercial losses (approximately 35 percent in total which would require public-private dialogue between
losses on average) and significant transmission losses ESPs, the regulator and government authorities.
(between 25 to 40 percent). Consequently, electricity
costs around US$0.6–1.0 per kilowatt [kW] compared ROADS
with an average of US$0.22 in the HoA. Harnessing
Somalia’s untapped renewable energy potential could 21. Pipeline work to develop road infrastructure
reduce generation costs by up to 25 percent. Somalia’s offers the potential to deepen strategic corridors
¹⁵ AfDB, (“Development of Wind Energy in Africa.” (AfDB, 2013).
7
OVERVIEW
and help traders and producers reach a wider range systems under one regulation. While three quarters of the
of markets. It is estimated that only 2,860 kilometers population are estimated to have access to mobile money,
(km) of the 21,830 km of roads in the country are paved Somali entrepreneurs – including those owned and
(13 percent)—and most are in poor condition. Only 31 managed by women – experience substantial challenges
percent of the rural population has access to an all- in accessing finance (Figure 6).¹⁶ Increasing the capacity
season road. The development of strategic corridors of financial institutions to mitigate risk perceptions
could help to leverage Somalia’s proximity to major and developing credit and collateral registries could
maritime routes. In the short term, preparatory work is help to increase access to financial products. Restoring
needed to develop a prioritized list of projects which are confidence in the national currency and its acceptance by
ready for implementation. Institutions to oversee and financial institutions can support the expansion of mobile
develop the roads sector, such as the Somali National money to underserved populations.¹⁷
Highway Authority, need to be established, and a policy
platform to coordinate infrastructure investments can 23. For Somalia to integrate with the global financial
help to maximize synergies among pipeline investments. system, financial integrity will need to be improved.
Any new investments in Somalia will need to be climate Somalia’s isolation from the global financial system puts
resilient considering the country’s susceptibility to shocks. the private sector at a disadvantage. Finance for investment
purposes is very limited, particularly outside of short-term
ACCESS TO FINANCE trade finance (Figure 7). Enacting the Digital Identification Bill
would provide the first step towards implementing a digital
22. Tangible measures can be taken to deepen identification (ID) which could help to address know-your-
financial inclusion and enhance the stability of the customer and due diligence concerns thereby supporting
financial sector. Money transfer bureaus (MTBs) are the establishment of correspondent banking relationships.
the dominant financial institution, but there is a risk of Somalia’s progress in strengthening the anti-money
instability as supervision is at a nascent stage. Stepping laundering / combatting of financing against terrorism
up supervision of MTBs by the Central Bank of Somalia (AML/CFT) agenda will be assessed in 2024. Preparing a
(CBS) as well as enacting the Financial Institutions Law national risk assessment will help Somalia get ready for a
and National Payment Systems Law can support the mutual evaluation, which is led by the Middle East and North
stability of the financial sector and bring all payment Africa Financial Action Task Force (MENA-FATF).¹⁸
Figure 6: Account Penetration among Women Aged 15+ in 2017 Figure 7: Use of Financial Services Including Mobile Money by
(2019 for Somalia) Firm Type
80% 120%
98% 94%
60% 100% 81%
40% 80% 67%
20% 60% 47%
0% 40% 24%
Afghanistan
Niger
Chad
Mauritania
Madagascar
Sierra Leone
Congo, Rep.
Guinea
Congo, Dem. Rep.
Mali
Ethiopia
Liberia
Benin
Malawi
Cameroon
Cote d'Ivoire
Mozambique
Burkina Faso
Rwanda
Zimbabwe
Uganda
Ghana
Kenya
Togo
Senegal
SSA (exc. high income)
Tanzania
Zambia
Somalia
20% 4% 6% 6%
0%
Use mobile money Has a loan Has bank account
Financial institution Mobile money Formal (5+ workers) Formal micro Informal (any size)
Source: Federal Government of Somalia (2020) and Demirguc-Kunt and others (2018). Source: World Bank (2019a).
Note: SSA= Sub-Saharan Africa.
¹⁶ World Bank, “Mobile Money Ecosystem and Household Survey (2nd wave).” Financed by the ICT Sector Support Project - Phase 2). However, most
SIM cards remain unregistered in the absence of a reliable foundational ID system, thus creating financial integrity issues. (World Bank, 2018).
¹⁷ Mobile money is currently only transacted in dollars. Restoring confidence in the national currency can support the availability of mobile money in
the Somali shilling which is widely used among the poor.
¹⁸ The MENA-FATF mutual evaluation is planned in 2024 and aims to prevent criminal abuse of the financial system.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
DIGITAL DEVELOPMENT AND the Investor and Investment Protection law as well as the
REGIONAL CONNECTIVITY Investment Promotion Agency could help to support the
growth of the formal private sector. Developing a fit-for-
24. While Somalia’s vibrant digital sector can be purpose public-private-partnership regulatory framework
credited for supporting the expansion of affordable could help to leverage private investments and support risk
mobile money, the road ahead involves further sharing between the public and private sectors.
expanding digital inclusion. Less than five percent
of the population are estimated to have access to 26. Several actions can be taken to support the
broadband and coverage of 3G and 4G is mostly limited environment for doing business. Enhancing public-
to urban areas. The telecommunications market is private dialogue in the FGS and the FMS can help to
fragmented, characterized by dominant regional support the implementation of the milestone Company
players and a lack of competition. Making progress Act of 2019, alongside efforts to strengthen online business
requires licensing all telecommunications operators registration. Enacting the Business Licensing Law could
and finalizing interconnection agreements between also help to harmonize processes for licensing and clarify
operators to allow for traffic to be exchanged at low or mandates between the FGS and the FMS. Supporting
zero cost. Somalia is connected to many submarine access to business data can enhance business-to-business
and cross-border terrestrial cables, which can improve cooperation. Developing a unified national business
connectivity for domestic consumers and enhance registration regime could establish a single unique business
regional connectivity, including for landlocked neighbors number nationwide across FGS and FMS. Availing business
such as Ethiopia.¹⁹ The Somali authorities should develop registry data with financial institutions could support know-
regulatory fundamentals such as enacting a Data Privacy your-customer requirements and the AML/CFT agenda.
Law to promote trust in digital transactions and develop Improving the ease of doing business in Somalia can
spectrum regulation. Over the medium-term, the support increased competition, particularly in sectors such
capacity of the National Communications Agency should as telecommunications, energy, and transportation.
be strengthened, and national and regional frameworks
for telecommunications should be harmonized. E. PILLAR 2 – CONNECTING WORKERS TO JOBS AND
SUPPORTING RESILIENCE
BUSINESS ENVIRONMENT
Investing in human capital to promote productivity and an
25. Developing Somalia’s vibrant business community inclusive growth process
could have far-reaching benefits for growth
and job creation. Somalia has a proud tradition of EDUCATION
entrepreneurship, which forms an important source of
employment, especially for women. Entrepreneurship 27. Restoring access to education, improving
accounts for more than half of all steady jobs and household learning outcomes, and providing a second chance
entrepreneurs provide a quarter of all jobs. However, to the population left out of the formal education
entrepreneurs and the broader business community system are critical for raising productivity. The
experience several challenges which vary by the size of primary gross enrollment rate (GER) is estimated to be
firm. The most common self-reported challenges include 20 percent, with approximately 3 million primary-aged
access to land and finance, which particularly affect female children (5–14 years) out of school.²⁰ Somalia’s GER is
and youth entrepreneurs. Enacting legislation such as significantly below the averages of SSA countries, low-
¹⁹ These include: (i) the EASSy submarine cable landing in Mogadishu; (ii) the Gulf to Africa (G2A) submarine cable landing in Bosaso (Puntland); (iii) the
Djibouti-Africa Regional Express (DARE) cable that lands in both Mogadishu and Bosaso (and thus helps to connect the EASSy and G2A cables); (iv)
the terrestrial Somcable fiberoptic link between Somaliland and Djibouti; and (v) Hormuud’s terrestrial microwave links to Kenya’s network at Liboi and
Mandera. More international submarine cables are on the way, including the Pakistan and East Africa Connecting Europe (PEACE) cable that will be
landing in Mogadishu, Bosaso, Kismayo and Hobyo starting in 2022; the 2Africa cable due to land in Mogadishu in 2023; and the Africa-1 cable.
²⁰ Based on United Nations Population Fund population data and Education Management Information System (EMIS) data (for 2019) from the Ministry
of Education, Culture and Higher Education (MoECHE).
9
OVERVIEW
income countries, and fragile-and conflict-affected were destroyed during the years of conflict. As a result,
countries by 99, 102, and 94 percent, respectively. At the one-third of the 93 districts in the country have GERs of
secondary level, the number of out-of-school children less than 10 percent, indicating acutely low access to
is even greater. Administrative data suggests that education.²¹ Developing education systems that provide
about 92 percent of children and adolescents within the same learning experiences for all citizens is critical
the official age range are not enrolled in secondary and can also present a basis for promoting unity and a
school. More than three-quarters of schools in Somalia national Somali identity.
Figure 8: Access to Education Compared with Peer Countries
Net school attendance ratio
100
Net school attendance ratio
80
60
40
20
0
Somalia 2019
Liberia 2013
Chad 2014
Senegal 2019
Mali 2018
Guinea 2018
Gambia 2013
Ethiopia 2016
Afghanistan 2015
Tanzania 2015
Benin 2017
Mozambique 2015
Uganda 2016
Ghana 2014
Burundi 2016
Malawi 2015
Kenya 2014
Zambia 2018
Rwanda 2015
DRC 2013
Cameroon 2018
Sierra Leone 2019
Togo 2013
Zimbabwe 2015
Primary Secondary
Source: Federal Government of Somalia (2020) and DHS STATcompiler.
28. There are opportunities for making quick to the sector. Recent progress in intergovernmental
progress to enhance access to education and coordination provides a strong foundation for addressing
learning outcomes. Forging partnerships with Somalia’s the challenges in the education sector.
active non-state education providers and communities
could help to rapidly increase access to education in the HEALTH
short term. Investments in second chance education and
skill training could provide access to formal education for 29. Despite modest improvements over the past 15
Somalis who have previously been excluded, including years, Somalia’s health indicators lag both regional
women, to enhance productivity. Technology can be and global averages. Life expectancy is 56 years,
leveraged to provide learning support to teachers and maternal mortality is a staggering 692 per 100,000 live
students across Somalia. To assess the effectiveness of the births, and fertility remains one of the highest in the world
education system in terms of learning outcomes, the FGS (with about 7.0 births per woman). In addition, stunting
should develop a student learning assessment system. among children under the age of five has been rising
The system should routinely measure what students and is currently estimated at 28 percent. The burden of
know and are able to do. The federal government should non-communicable diseases is rising and represents
take a strong stewardship role to set policy direction, nearly 22 percent of Daily Adjusted Life Years lost. These
monitor sector progress, and align financial support diseases affect mostly those over the age of 50, who are
²¹ Based on United Nations Population Fund population data and the EMIS data (2019) from the MoECHE.
10
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
also among the highest at risk for COVID-19. Women face never attended formal schooling. Barriers to education
multiple challenges, including gender-based violence, are linked to poverty, distance to schools, and entrenched
which is estimated at 12 percent, as well as difficulties social norms, including social pressures for early marriage,
accessing services as men are responsible for health expectations that girls support households and caregiving,
decisions.²² Coverage of basic maternal and child health and the greater ‘social value’ attached to boys’ education.
services is low remains extremely low due to both supply The dominance of male teachers may discourage the
and demand side constraints, with only 21 percent of enrollment and/or retention of girls. Almost 92 percent
births occurring in health facilities. There are similar gaps of primary level teachers are male. Reproductive health
in the treatment of childhood illnesses.²³ Only 31 percent outcomes are poor, with an estimated maternal mortality
of women receive antenatal care and just 11 percent of rate of 692 deaths per 100,000 live births.²⁴ Early
children are fully immunized. marriage and adolescent fertility are significant factors
in high maternal mortality rates. More than a third of
30. Targeted investments in health service delivery, women aged 20-24 report marriage before the age of
financing, and stewardship are needed to improve 18, leading to early first pregnancies and high fertility
health outcomes. Investing in high-impact, cost-effective rates. The combination of high fertility and extremely
services through the prioritized package of essential poor reproductive health outcomes limit women’s ability
health and nutrition services, can help to address the to contribute to economic growth and prevents Somalia
leading causes of mortality and disability (communicable from capturing a demographic dividend.
diseases, malnutrition, and reproductive, maternal,
neonatal and child health disorders) which would improve 32. Women and other minority groups also face
health outcomes. Given limited government capacity, multiple barriers in engaging decision-making
health services can be delivered through government-led processes. The quota for female parliamentary seats has
contracting of health service providers, leveraging the not been fulfilled, due to challenges ranging from the high
extensive private sector. To support delivery, it is important costs of registration fees to prohibitive social norms and
to strengthen the stewardship capacity of federal and values including gender-based violence. By strengthening
state Ministries of Health. Functional assignments should the social contract there can be opportunities to enhance
be clarified between the federal and regional ministries inclusive decision-making processes. The current model
of health to enhance efficiency in implementation and of social service provision by non-state actors offers
financing. While priority is being given to implementing limited opportunities for citizens to engage directly
COVID-19 response measures, other essential medical with public officials to influence the quality of services.
services should be maintained. Over time, it will be critical Going forward, enhancing the state’s regulatory and
to address long term human resource gaps, improve supervisory capacity of non-state actors, strengthening
health infrastructure capacity (through a combination of media markets, and passing legislation to support the
public and private sector investments), and strengthen protection of women can help to strengthen Somalia’s
the regulatory environment for the health sector. social contract and more inclusive political processes.
GENDER SOCIAL PROTECTION
31.There are stark gender disparities in socioeconomic 33. Somalia’s social protection system, the
outcomes with women having lower educational Baxnaano program and the unified social registry,
attainment and literacy rates than men. Gender could expand coverage over time and support
inequalities in enrollment are pronounced, with 72 percent human capital objectives. The Baxnaano program
of rural women and 59 percent of urban women having covers less than 10 percent of the population, which
²² Federal Government of Somalia and UNFPA. “The Somalia Health and Demographic Survey 2020.” (2020).
²³ Skilled personnel: nurse, midwife, auxiliary midwife, clinical officer, or doctor. (SHDS, 2020).
²⁴ Federal Government of Somalia and UNFPA. “The Somalia Health and Demographic Survey 2020.” (2020).
11
OVERVIEW
is low compared to needs (Figure 9). Over time, the with cash transfers supporting the uptake of health and
coverage of the Baxnaano program could be scaled education services. Transferring the Baxnaano system
up if there is sufficient funding to cover at least 30–40 to the government will require the FGS developing
percent of the population and a youth targeted social appropriate safeguards such as a Data Protection and
safety net. The unified social registry could also be Data Privacy Law and launching a Digital ID system to
coordinated with disaster risk management systems enable secure and effective verification of beneficiaries
to ensure a rapid response to any potential crisis. Over of social protection programs. Further developing
time, the focus of the social protection system could the Baxnaano program will require enhancing the
shift from humanitarian relief to a government-led institutional capacity of the federal and regional
social safety net system with human capital objectives, Ministries of Labor and Social Affairs.
Figure 9: Percentage of households living in Baxnaano targeted areas receiving transfers, by state
100%
80%
60%
40%
22 24
17 17 20
20% 17
11
0%
Jubaland Puntland Hirshabelle Galmudug South West Somaliland Total
Source: Targeting Evaluation of Somalia Shock-Responsive Safety Net Program, Development Pathway & Samuel Hall, 2021.
Building resilience through improving water security support agricultural development. The use of new
and disaster risk management technologies such as manual well drilling, as well as
the introduction of farmer-led irrigation can also help
WATER to secure rural livelihoods. Both the urban and rural
economies need to be underpinned by affordable,
34. Water insecurity in Somalia is exacerbated by inclusive, and reliable water services, which is critical
climate change, but progress can be made through for improving human capital development.
strengthening institutions and undertaking
investments. Frequent episodes of floods and drought DISASTER RISK MANAGEMENT
reduce the ability of watersheds to naturally store, treat
and slowly release water for productive and human 35. Building disaster prevention and preparedness
consumption. To make progress in strengthening water capacities can help to develop a nationally unified
management, over the short-term the Ministry of and coordinated emergency alert and early warning
Energy and Water Resources and the National Disaster system. Currently, climate-related crises are addressed
Risk Management should work together to strengthen on an ad hoc basis. Government coordination between
flood and drought risk management measures. In the federal and regional levels is a challenge and there
urban areas, the federal government and municipalities is reliance on humanitarian support. Challenges in
should establish an urban service delivery model to coordinating responses to disasters partly stem from the
support the rapid urbanization process and rural- lack of a nationally owned and managed emergency alert
urban linkages. Investments should improve water and early warning system. In addition, the government’s
and land management practices, including through limited capacity to translate and disseminate
soil conservation and flood management, which can hydrometeorological information inhibits user access
12
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
and uptake of early warning information, and thus rehabilitation and the construction of new housing.
rarely results in mitigative actions. The establishment of Managing the urbanization process could help to
preventive and preparedness systems will lower the loss generate agglomeration economies by shortening
of human lives and reduce the costs of humanitarian distance in terms of services, infrastructure, and how
delivery in the long term. Developing an Emergency far people must travel. Rapid urbanization could
Alert and Early Warning System involves establishing a support the expansion of domestic markets for Somali
government-owned emergency alert system. A fiscal goods produced in rural areas provided there are
disaster risk assessment can identify steps needed to improvements to the enabling sectors and efforts to
develop disaster risk financing mechanisms. improve trade integration.
F. TOWARDS THE FUTURE DRIVERS OF GROWTH – AGRICULTURE, CROP, AND LIVESTOCK SECTORS
LEVERAGING URBANIZATION, UPGRADING
AND DIVERSIFICATION 37. The development of Somalia’s agriculture, crop,
and livestock sectors could support enhanced food
URBANIZATION security for the country and prospects for trade.
The livestock and crop sub-sectors in Somalia are
36. Rapid urbanization presents opportunities important sources of livelihoods, particularly in rural
to leverage cities as an anchor of development. areas. However, the performance of the crop sector in
More than half of the population and close to 75 the last decade has been weak, providing only about
percent of Somalia’s 2.6 million internally displaced 40–50 percent of per capita cereal needs—even though
persons (IDPs) are estimated to live in cities. Urban the potential to recover to the pre-war level is high. The
growth has largely been fueled by rural-urban livestock sector, by contrast, has shown remarkable
migration due to push factors such as drought, resilience. Somali exports of goats and sheep—mostly
poverty, and insecurity, although pull factors such to the GCC countries—typically accounts for 75 percent
as access to better services and employment matter of total exports. By late 2021, exports of livestock
as well. However, urbanization is also associated were recovering and were at pre-pandemic levels,
with challenges. Governance is challenging due to although the emerging drought in late 2021/early 2022
overlapping mandates between federal and state-level may affect the livestock herd population as well as
ministries as well as municipalities. Unclear land titles livelihoods of rural communities. Somalia’s proximity
constrain projects on urban upgrading, infrastructure to GCC countries is advantageous, but if improvements
to sanitary and phytosanitary standards are not made,
there is a continuing possibility of trading partners
Figure 10: Urbanization Trends in Somalia
imposing import bans.
25,000 22,865 60
63.78
Urban share of the population (%)
54.49 38. Strengthening the agriculture sector requires
Urban population (Thousand)
20,000 50
adapting to climate change, improving water
15,000 46.14 40 security, and enhancing value addition. Adopting
climate-smart agricultural (CSA) practices such as
10,000 30 increasing the uptake of new crop varieties, improving
74.31
5,000 20 soil and water management practices and diversifying
crops can help to adapt to frequent climatic changes.
0 10 Improving water for rural livelihoods could involve
1950 1970 1990 2010 2030 2050 the introduction of farmer-led irrigation in Jubba and
Shabelle riverine areas, while in parallel investing in
Urban population (left axis) Urban share (right axis)
flood control infrastructure which can be developed
Including IDP settlements
over the medium-term. Productivity and value
Sources: World Urbanization Prospects (2018) and Somali High Frequency Study addition could be promoted through protection
(World Bank (2017). against communicable diseases, facilitating the feed
13
OVERVIEW
and fodder trade, as well as the adoption of digital interests—or that they could be subject to legal or
agricultural technologies. Further developing value compensation claims. Not all FMS have accepted
chains in the agro-processing and livestock sectors the legitimacy of the Petroleum Act and the Somalia
could support commercial agricultural development. Petroleum Authority, thus creating the potential for
Improving access to finance in the livestock sector could political dispute in case of any FGS award in their
also support the integration of pastoralists. Access to territory. Established revenue-sharing arrangements
finance could include a menu of products, such as risk are likely to lead to highly unequal revenue sharing
transfer instruments like drought insurance, savings, across the FMS, with limited scope for re-balancing,
and access to credit. creating the potential for political tension. The capacity
of the FGS to regulate, monitor and audit petroleum
FISHERIES SECTOR sector activities and environmental risks is currently
extremely limited.
39. The fisheries sector also holds substantial
potential for Somalia, provided governance 41. It is essential that the FGS takes early steps
improves. Somalia has a productive marine ecosystem to improve the institutional environment for the
due to seasonal upwelling along its Indian Ocean coast. petroleum sector through developing the legal
However, weak governance is a major constraint, due and fiscal framework, as commercial petroleum
to the lack of an adequate regulatory environment, production could take a decade or more. The FGS
insufficient coordination between the federal and needs to manage Somalia’s petroleum resources in a way
regional fisheries ministries, and a lack of monitoring that protects national interests, ensures political stability,
control and surveillance. Improving governance in enhances state credibility, minimizes contractual risk, and
the fisheries sector requires building institutions. avoids environmental damage. Enacting the Extractives
The Federal Fisheries Law should be enacted and Industries Income Tax Law is an essential first step, and the
the agreement to share revenues from fisheries procurement of awards should be in full compliance with
licenses to strengthen cooperation between the the FGS’s legal framework. Going further, the consensus
federal and regional ministries should be renewed and with all FMS concerning petroleum sector management
implemented. A strengthened legal framework can should be re-established. The regulatory capacity of
help to prevent illegal, unreported, and unregulated the FGS should be scaled up particularly in the areas
fishing as well as support engagement with regional of oversight, monitoring, and audit of petroleum
inter-governmental forums, such as the Indian Ocean operations as well as environmental management.
Tuna Commission. Improving fisheries governance Over the medium term, environmental oversight should
could set the foundation for developing a Blue be strengthened by enhancing intergovernmental
Economy to allow for sustainable ocean use.²⁵ cooperation, as well as building the capacity of the
National Climate Change Committee.
PETROLEUM
G. CONCLUSION AND SUMMARY ACTIONS
40. Petroleum exploration potentially offers new
opportunities. Based on prospects of substantial 42. Somalia’s ambitious reform agenda can be
offshore oil reserves, the government has been sequenced according to criticality and feasibility.
preparing the legal and fiscal framework for petroleum Actions in the first 100 days can be prioritized by likely
management. However, the experience of oil and gas impact for advancing the reform agenda to deliver
licensing to date has not been in full compliance with tangible benefits for the Somali people and are ready
all applicable FGS laws, raising the risk that production- for implementation. The suggested reforms are broadly
sharing agreements awards may not protect Somalia’s anchored in the HIPC initiative. For example, the enactment
²⁵ The Blue Economy is the sustainable and integrated development of oceanic sectors, in healthy oceans (World Bank, https://www.worldbank.org/
en/topic/environment/brief/the-world-banks-blue-economy-program-and-problue-frequently-asked-questions)
14
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
of the Electricity Bill, the Data Privacy Bill and the issuance 43. Actions to support the medium to long term
of customs reference value tables support the achievement reform agenda may require new sources of financing,
of HIPC Completion Point triggers. Other reforms such as which can be feasible once Somalia reaches the
advancing the federal agenda, strengthening institutions, HIPC Completion Point and is eligible for full and
implementing wage bill controls, and improving the irrevocable debt relief. In the short-term, Somalia’s
environment for doing business can support state fiscal space is limited and there is a commitment to zero
stabilization, fiscal sustainability, and the formalization of borrowing limits. The immediate priority is to enhance
the private sector. Since several actions involve parliament fiscal sustainability (through revenue mobilization and
reviewing and enacting legislation, it will be critical for the wage bill controls) and focus on obtaining debt relief.
lead government agency to engage the political leadership Once Somalia reaches the HIPC Completion Point,
to ensure there is sufficient understanding of the bills under there may be opportunities to access new sources of
consideration. The suggested reforms to be completed financing, where priority should be given to financing on
in the first 100 days have benefited from investment concessional terms, which could support new investments
projects and policy advice from the World Bank Group and in human and physical capital, as well as institutions to
international partners. support state-building and growth.
Table 1: Actions to be completed in the first 100 days
PRIORITY AREA ACTION TO BE TAKEN
Maintain macroeconomic stability and • Complete the IMF Extended Credit Facility reviews in a timely way
advance the debt relief process • Strengthen wage bill controls, including allowances
• Finalize remaining HIPC Completion Point triggers
• Continue implementation of the ninth National Development Plan
• Maintain the Financial Governance Committee
Advance the federal agenda • Issue regulations to support the harmonization of customs regimes at the ports of
Mogadishu, Bosaso and Kismayo
• Renew and implement the inter-ministerial agreement to share revenues from
fisheries licenses
• Adopt a rules-based formula to guide transfers from the FGS to the FMS
Develop economic corridors and support • Enact the Electricity Bill
private sector development • Develop a pipeline of climate-resilient infrastructure projects
• Enact a Digital Identification bill
• Enact a Data Privacy bill
• Enact the Financial Institutions bill
• Enact the National Payment Systems bill
• Finalize interconnection regulations and the licensing of all operators
• Issue regulations to support the Central Bank Act
• Develop an AML/CFT Action Plan using the National Risk Assessment
• Adopt and implement spectrum regulation
Strengthen productivity through investing • Roll-out COVID-19 vaccinations
in human capital with a gender and
inclusion lens
Harness new drivers of growth through • Enact the Investor and Investment Protection bill
improving the business environment, • Enact the Federal Law on Fisheries Bill
diversification, and upgrading • Enact the Extractives Industries Income Tax
• Resolve any outstanding legal issues surrounding the award of 7 PSAs to Coastline
Exploration in February 2022
15
PILLAR 1
JOB CREATING PRIVATE INVESTMENTS
Supporting growth through maintaining macro stability and
advancing the debt relief process
Moving the federalism agenda forward through smaller
agreements that support long-term state-building objectives
Investing in economic corridors through improved connectivity
and better conditions for private sector growth
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
MACRO STABILITY AND
DEBT RELIEF POLICY NOTE
A. SUMMARY OF KEY MESSAGES unlock access to financing.
• Continue the commitment to avoid running a budget
Somalia is steadily building institutions to deficit and replenish the fiscal buffer.
develop the resilience of its economy. Inflation • Harmonize the customs and inland revenue
has remained broadly stable, supported by administrations.
widespread dollarization. However, the economy • Enhance wage bill management, including
faces multiple sources of vulnerability, such as rationalizing the payment of allowances.
climate-related shocks, persistent insecurity, and,
more recently, the COVID-19 pandemic. The policy Improve debt management:
instruments available to respond to such shocks • Continue the commitment of not borrowing and
are limited because the Central Bank of Somalia institutionalize debt management functions.
(CBS) cannot use monetary policy. In addition, the • Include the purpose of borrowing, the use of
fiscal space to implement development priorities is guarantees and on-lending in primary legislation.
constrained. Somalia is also in debt distress. To address
high levels of indebtedness for loans accumulated MEDIUM-TO-LONG-TERM:
prior to the civil war, Somalia engaged in the Heavily
Indebted Poor Countries (HIPC) initiative, reaching Strengthen financial stability and market-based
a Decision Point (DP) in March 2020. Somalia is in intermediation:
the HIPC interim period and will only qualify for full • Enhance prudential regulations for improved supervision
and irrevocable debt relief upon reaching the HIPC of the banking sector and strengthen the reporting and
Completion Point (CP) milestone. public disclosure of key financial soundness indicators.
B. SUMMARY OF KEY ACTIONS Enhance fiscal sustainability:
• Continue enhancing customs administration with a
SHORT-TO-MEDIUM TERM: convergence of minimal values across ports.
• Introduce personal income tax requirements, and
Strengthen financial integrity and integrate Somalia extend the collection of sales taxes;
in the global financial system • Increase non-tax revenues, particularly
• Update the Financial Institutions Law and bolster the for firms providing services, such as the
CBS’s supervision of financial institutions. telecommunications sector.
• Implement recommendations from the national risk • Gradually increase the fiscal space for the social
assessment. sectors, as domestic revenue mobilization improves.
• Develop a trusted form of digital identification.
Improve debt management:
Enhance fiscal sustainability: • Develop regulations to support guarantees and on-
• Accelerate progress in reaching the HIPC CP to lending management.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - MACRO STABILITY AND DEBT RELIEF POLICY NOTE
C. WHERE SOMALIA STANDS NOW The CBS lacks monetary policy instruments and
Somalia is isolated from the global financial system
Growth rates are low, but efforts continue to strengthen
macroeconomic institutions Although the CBS is making efforts to transition to a
policy-oriented institution, it lacks monetary policy
Growth rates in Somalia are low because the instruments. With negligible reserves and lacking tools to
economy has been shaped by decades of civil war; it influence credit markets, the CBS has no capacity to manage
also remains vulnerable to shocks. Following repeated shocks through monetary policy. Price stability is ensured
shocks, between 2014 and 2021 real per capita growth through de facto dollarization, accounting for an estimated
rates averaged zero percent. Somalia’s lack of an enabling 75 percent of transactions.²⁶ Somali shillings are in circulation,
infrastructure for domestic production and human capital but these are virtually all counterfeits. As such, they are
following decades of prolonged conflict has contributed used for low value transactions in small denominations.
to a dependence on imports for basic commodities, thus The establishment of the Central Bank Act in 2012 followed
resulting in a high trade deficit. Remittances and official by the CBS Strategic Plan for 2020-2024 seeks to support
development assistance (ODA) largely finance the trade a transition from the CBS being a fiscal agent of the FGS
deficit, averaging 54 percent of gross domestic product to a policy-oriented institution based on independence,
(GDP) in 2020 and 2021. Achieving higher growth rates responsibility, accountability, and transparency.
has been limited by the economy’s susceptibility to
shocks, such as extreme climatic events, the COVID-19 Somalia is largely isolated from the global financial
pandemic, and persistent insecurity. system, with an overreliance on a few transmittal
channels for financial flows. Gaps in country systems
Since the agreement on the Provisional Constitution tackling money laundering and financing of terrorism
in 2012, Somalia has been gradually establishing risks has left Somalia with only a tenuous connection
institutions to strengthen macroeconomic stability. to the global financial system. The lack of a trusted
Broad price stability has been maintained largely due to means of identification means that know your customer
widespread dollarization. This is in contrast to the pre- (KYC) protocols are unreliable. There are few functional
war period, which was characterized by high inflation and correspondent banking relationships, which makes
an unsustainable exchange rate regime. The enactment international transactions challenging. It also poses a risk
of a Public Financial Management Act in 2019 and to remittances, ODA, and investment flows. Financial
supporting regulations has led to the establishment of flows are largely channeled through the money transfer
the rules and procedures for managing public resources. business (MTB) industry. However, the processes for
The Federal Government of Somalia (FGS) has avoided regulating and supervising MTBs are at an early stage
large fiscal deficits and the accumulation of arrears. of development. Market-based financial intermediation
Fiscal transparency is being enhanced as the FGS and is challenging given the nascent development of
Federal Member States (FMS) publish quarterly fiscal core financial sector institutions and the widespread
data in a consolidated format. More broadly, the rules informality that persists in the private sector.
for encouraging private investment are being developed
through the enactment of the Company Law in 2019. This The available fiscal space to finance development
law sets the procedures for the registration of new firms priorities is constrained
and rules for market entry and exit. In addition, there is
other pending legislation, such as the Investor Protection Somalia has limited fiscal space to finance the
Law and the Foreign Investment Law. implementation of its development priorities.
²⁶ World Bank staff analysis.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Domestic revenue mobilization has improved from a low Raising revenue collection is constrained by the current
base, nearly doubling from 2016 to 2021. However, it is still low levels of growth, which limits the tax base. Tax morale
one of the lowest in the world at an estimated 2 percent is weak as there is a poor link between taxes and service
of GDP in 2021. Households and businesses face multiple provision, with services largely delivered by non-state
points of revenue collection, including informal and illegal actors. Tax administration is fragmented, with six stand-
checkpoints, which present a burden and reduce the alone administrations collecting revenues. There are also
revenue that can be collected by established government variations in organizational structures, as well as in the
authorities.²⁷ Progress in improving revenue collection application of tax instruments.
is uneven across the Federation. Trade-related taxes
dominate revenues for regions with ports (Mogadishu, Public expenditures across the Federation are
Jubbaland and Puntland), accounting for over two-thirds gradually increasing, dominated by personnel costs.
of total taxes collected in these regions in 2020. The Between 2016 and 2021, public expenditures have nearly
remaining FMS are dependent on intergovernmental tripled in nominal terms. The wage bill accounts for
transfers, although these are currently not based on half of total expenditures. The inclusion of new foreign-
clear and transparent criteria.²⁸ Upon reaching the HIPC trained recruits in the security sector, which is presently
DP, external grants channeled through the budget as a unquantified, will add additional pressure on government
percentage of GDP increased from 1.7 percent in 2019 expenditures. Expenditures are currently dominated by
to an average of 3 percent in 2020 and 2021. Somalia security and the administration, as basic government
has avoided running a budget deficit after grants are functions are established. Efforts to introduce
considered. Despite the improvements in revenue competitive bidding for rations and an audit of security
mobilization, Somalia’s expenditure needs are vast, with sector personnel have helped to improve the efficiency
ongoing pressures to balance spending between military of security sector expenditures. It has also highlighted
and administration expenses to secure the country, as the benefits of pursuing challenging reforms.²⁹ Social
well as identifying fiscal space for priorities in the ninth sector expenditures are largely financed by grants that
National Development Plan (NDP9). use country systems. Over time, it will be important to
increase the fiscal space for economic and social priorities
Although efforts continue to strengthen revenue so that expenditures support economic growth and
collection, expenditure pressures are substantial poverty reduction.
Progress is gradually being made to improve Somalia is seeking debt relief through the HIPC
domestic resource mobilization, but revenue initiative, with ongoing efforts to strengthen debt
potential is limited by low levels of growth, weak management capacity
tax legitimacy, and fragmentation. To increase inland
revenues, the FGS has been leading reforms, such as the Somalia is in debt distress and will only receive
enactment of the Revenue Administration Law 2019, irrevocable debt relief upon reaching the HIPC
and the establishment of a Tax Policy Unit and Large Completion Point. Somalia reached the HIPC Decision
Taxpayers Office. In addition, the FGS has introduced Point in March 2020, qualifying the country for debt relief
Taxpayer Identification Numbers generated through and reengagement with the international community.
the Somali Financial Management Information System Arrears to international financial institutions (IFIs) were
and is developing a tax audit strategy. Between 2016 cleared, reducing the stock of debt from 83 percent of GDP
and 2021, income and sales tax increased more than 15- in 2019 to 45 percent of GDP in 2020. Somalia has agreed
fold at the FGS level. However, it still accounts for less to the terms of debt relief with most Paris Club creditors,
than 17 percent of revenues collected in 2020 and 2021. and it is seeking comparable terms of agreement with
²⁷ “Domestic Resource Mobilization in Somalia, Public Expenditure Review.” (World Bank 2021).
²⁸ See “Fiscal Federalism and State Stability Policy Note” (World Bank 2022) for more details.
²⁹ Financial Governance Report, Finance Governance Committee, (2019).
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - MACRO STABILITY AND DEBT RELIEF POLICY NOTE
non-Paris Club creditors. Somalia is still in debt distress will require developing human and physical capital,
and has a zero non-concessional borrowing ceiling, as well as strengthening institutions through building
as well as a commitment to not accumulating arrears. enabling infrastructure and implementing reforms.
Somalia will receive irrevocable debt relief upon reaching Somalia will only be able to finance much-needed
the HIPC Completion Point, which requires maintaining a investments if resources are available from both
track record of macroeconomic stability, implementing private investors and development partners. Accessing
the NDP9 for at least one year, and completing all HIPC resources from development partners will need to go in
Completion Point floating triggers agreed at the Decision tandem with making improvements to the governance
Point.³⁰,³¹. Even though it is likely that risks to debt environment and advancing progress toward reaching
sustainability will persist after reaching the Completion the HIPC Completion Point. In addition to political and
Point, debt relief will provide a fresh start for the country, macroeconomic stability, encouraging private investment
as well as renewed access to development finance needed will require long-term structural reforms, such as
for inclusive growth. investing in job-creating private investments. This would
include improvements to the business environment and
Somalia is gradually building debt management unlocking access to finance, as well as connecting workers
functions. The focus has first been on obtaining the data to jobs through investing in human capital.
to support the reconciliation of debt, undertaking debt
renegotiation discussions with creditors, and improving Improve financial integrity and Somalia’s connections
the transparency of debt data through the publication of to the global financial system
quarterly debt bulletins — which is a HIPC Completion Point
trigger. The Debt Management Unit (DMU) is financed by Strengthening financial integrity will be critical to
the African Development Bank and has only recently been integrating Somalia in the global financial system.
included in the Ministry of Finance’s organigram. As such, Supervision of the MTB industry should be bolstered
the institutionalization of the DMU’s functions remains a by updating the regulatory framework, such as the
concern. Furthermore, the capacity for managing fiscal Financial Institutions Law and guidance concerning
risks from direct and contingent liabilities is at a nascent financial reporting for supervised financial institutions
stage of development, including risks that may arise from and suspicious transactions. In parallel, the CBS should
public-private partnership agreements in sectors, such as strengthen its working knowledge of supervised
energy and ports, among others. financial institutions and disclose risks to enhance public
confidence. Strengthening the enforcement of anti-
D. WHAT SOMALIA CAN DO TO MAKE PROGRESS money laundering and combatting the financing against
terrorism, as well as suspicious transaction reporting,
Stabilize the economy and encourage investment can also help to guard against financial integrity risks.
Developing a trusted means of identification will also
Supporting sustained and long-term growth in help to strengthen KYC protocols. Accelerating the
Somalia will require building economic resilience completion of the national risk assessment is a priority
through persistent reform efforts. Rebuilding the in preparing for the Middle East and North Africa
economy from the effects of Somalia’s long civil war Financial Action Task Force Mutual Evaluation in 2024.
³⁰ Immediately prior to reaching the HIPC Completion Point, staff of the World Bank and International Monetary Fund (IMF) will work closely with
the Somali authorities and creditors to determine the final amount of external debt eligible for debt relief. It will also compute the amount of
HIPC assistance that each participating creditor should provide. The World Bank and the African Development Bank (AfDB) will provide full and
irrevocable relief of all qualifying debt owed to the International Development Association (IDA) and the AfDF through the Multilateral Debt Relief
Initiative. The IMF will provide similar beyond-HIPC relief.
³¹ The Completion Point triggers and other requirements for reaching the Completion Point are described in IDA and IMF, “Federal Republic of
Somalia: Enhanced HIPC Initiative—Decision Point Document,” IDA/R2020-0086, March 11, 2020. Regular, successful reviews of the reform
program agreed with the IMF under the Extended Credit Facility form a critical part of the macroeconomic track record. Somalia is expected to
produce Annual Progress Reports documenting implementation of the NDP9, which staff of the World Bank and the IMF will then review in Joint
Staff Advisory Notes. The present status of Completion Point triggers is summarized in Annex 2.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
This Evaluation will assess the effectiveness of measures ports of Bosaso, Kismayo and Mogadishu. This will help to
to combat money laundering and terrorist financing. To modernize customs and enhance trade-related tax revenue
support market-based financial intermediation, the CBS collection. Regulations to the Revenue Administration
must work toward enhancing the prudential regulations Law are expected to enhance taxpayer compliance with
for the banking sector, the adoption of revised regulations tax obligations, as well as help to clarify mandates at the
on capital adequacy, and the introduction of reserve FGS and FMS levels regarding the implementation of the
requirements for banks over the medium-term. law. Improved tax administration should focus on limiting
tax exemptions and monitoring how the behaviors of tax
Continue the commitment to avoid running a officials change in response to tax automation reforms.³³
budget deficit
Over the medium- to long-term, revenue mobilization
Although the fiscal situation may continue to be should prioritize customs administration, extending
challenging in the short term, there should be a personal income tax, and strengthening human
continued commitment to avoiding a budget deficit. capacity to administer taxes. Efforts should continue to
Avoiding a budget deficit should be supported by efforts enhance customs administration, with a convergence of
to increase revenues and improve expenditure efficiency. minimal values across the major ports. Other opportunities
Replenishing the fiscal buffer will also help to smooth for enhancing tax collection include introducing personal
expenditures to provide greater predictability in financing income tax requirements; extending the collection of sales
core expenditures. A budget deficit has been avoided taxes — including through automated payment points;
after grants are considered. Grants play an important and continuing to increase non-tax revenues, particularly
role. However, the type of financing available in 2020 and for highly profitable firms that pay relatively low levels of
2021 — such as grants to support the COVID-19 pandemic taxes, such as the telecommunications industry and other
and the increased Special Drawing Rights (SDR) allocation service sectors. Strengthening human capacity across the
(which incur a net liability) — are exceptional. As such, they FGS and FMS to administer tax collection can also help to
should not be considered as a stable source of financing raise revenues.
budgeted expenditures.
Improve the efficiency of public expenditures with a
Enhance domestic resource mobilization through focus on the wage bill
the harmonization of the customs and inland
revenue administrations In the short- to medium-term, curbing the growth of the
wage bill will be critical for increasing the fiscal space
Over the short- to medium-term, Somalia should focus to implement the NDP9 priorities. Measures that can be
on reducing fragmentation, improving the regulatory taken to support the fiscal sustainability of the wage bill include
framework, and strengthening tax administration. rationalizing processes for awarding allowances and ensuring
Improving intergovernmental fiscal coordination and that only eligible civil service personnel receive payments.
dialogue in all the FMS can help to build consensus on Quantifying the cost of additional recruits in the security sector
transitioning to a national customs administration and could help the government to better plan for rising fiscal
a national inland revenue administration. Increasing pressures. Going further, advancing the dialogue as to which
harmonization should entail support for a common level of government will assume key functional assignments,
approach to developing an organizational structure and particularly in the security sector, could support an improved
establishing core functions at the FGS and FMS levels.³² allocation of resources in line with responsibilities.
The harmonization of customs regimes should focus on
agreeing on the common customs reference value tables Over the medium- to long-term, reforms to the wage
and automating the customs administration systems in the bill should be prioritized. Measures to enhance the fiscal
³² Core functions include tax policy, revenue management and research, a large taxpayers office, compliance risk management, corporate services,
human resource management, training and capacity building, and taxpayer support to promote voluntary compliance.
³³ “Domestic Resource Mobilization in Somalia, Public Expenditure Review.” (World Bank 2021).
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - MACRO STABILITY AND DEBT RELIEF POLICY NOTE
sustainability of the wage bill could include introducing debt recording should focus on preparing an annual debt
ceilings on the number of positions in specific grades per report that features information about the context in which
year, as well as the retrenchment of staff with no formal debt management operates (macroeconomic and market
education. All post-legal retirement age civil services should conditions), debt stock, amortization profile, and cost-risk
also be removed from their positions. The consideration indicators. Furthermore, as Somalia considers different
of the pensions bill could also support the retirement sources of financing — such as loans that may require a
of personnel, provided it is well designed with a fiscal government guarantee, on-lending and public-private
sustainability lens. Over time, there should be a greater partnership arrangements — it is possible that fiscal risks
orientation toward social and economic expenditures, may materialize. Engaging in capacity building for fiscal
which can help to improve service delivery, perceptions of risk management at an early stage will also be critical in
state legitimacy, and encourage tax morale. mitigating risks.
Improve the framework for debt management Complete the outstanding HIPC CP triggers
In the short- to medium-term, Somalia should Commendable progress has been made in completing
continue to avoid borrowing; also, debt management a substantive number of HIPC CP triggers. Several HIPC
functions need to be institutionalized and the legal Completion Point triggers have been achieved or are near
framework for debt strengthened. Given Somalia’s high completion. In the area of public financial management,
level of indebtedness, the commitment to avoid borrowing the Office of the Auditor General has published audited
should continue. The DMU should be institutionalized in financial accounts and Regulations to the PFM Act of
the civil service to ensure the sustainability of functions. 2019 have been issued. To enhance domestic resource
Primary legislation for debt should be enhanced to include mobilization, the FGS and FMS reached an agreement
the purpose of borrowing, the use of guarantees and on- on the single tariff schedule for major ports. Debt
lending, and the need for parliamentary approval of all transparency has improved through the publication of
domestic and external borrowing, as well as the issuance quarterly debt bulletins. Following the enactment of the
of guarantees. These improvements to primary legislation Company Act in 2019, regulations were issued to allow
can help to provide the enabling framework for a time when for minority shareholder protection. In the social sectors,
Somalia can borrow. The quality of quarterly debt bulletins new agreements between the FGS and the FMS have
published by the Ministry of Finance have improved over been reached in education and health. The United Nations
time. They could be further enhanced to meet all the Convention Against Corruption has been ratified and the
requirements of the HIPC CP trigger. Somalia Annual Fact Book is being regularly published.
In the medium- to long-term, efforts should focus on The remainder of the HIPC CP triggers focus on the
further improving regulation, building the capacity enactment of critical laws. Laws that require enactment
of the DMU, and preparing annual debt reports. include the Extractive Industry Income Tax (EIIT) Law,
Regulation is needed to support guarantees and on-lending the Data Privacy Law (needed to establish a national
management regarding limits, processing, and monitoring social registry as a functional platform that supports
of risks, as well as following-up on transactions. The registration and determination of potential eligibility for
capacity of the DMU should continue to be strengthened social programs), and the Electricity Act. The progress in
through securing on-the-job training. The provisions for reaching all HIPC CP triggers is outlined in Annex 2.
22
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
ANNEXES
ANNEX 1: SELECTED ECONOMIC AND FINANCIAL INDICATORS TABLE
Table 1. Selected Economic Indicators
(percent of GDP unless otherwise indicated)
2019 2020 2021e 2022f 2023f 2024f 2025f
GDP, nominal (millions of dollars) 6,477 6,965 7,373 8,202 8,839 9,621 10,49
Real GDP growth 3.3 -0.3 2.0 2.7 3.6 3.7 3.9
Per capita GDP, nominal (dollars) 451 471 485 525 551 583 619
Poverty incidence (US$1.90/day PPP) 69
Money and prices
CPI inflation rate (period avg) 4.5 4.3 4.6 8.5 3.6 3.8 3.7
Private credit (growth, e.o.p) 11.8 7.0 46.0 .. .. .. ..
Private credit (share of GDP) 3.2 3.4 5.0 .. .. .. ..
Fiscal (central government)
Total revenue and grants 5.2 7.1 5.1 6.7 6.7 4.2 4.6
o/w external grants 1.7 4.1 2.0 3.6 3.3 0.5 0.5
Total expenditure 4.9 6.8 6.2 7.0 6.8 6.1 6.4
o/w Compensation of employees 2.5 3.3 3.4 3.2 3.1 2.9 3.1
o/w Transfers to subnational 0.7 1.3 0.6 1.0 0.8 0.6 0.6
o/w Purchase of non-financial Assets 0.2 0.3 0.2 0.3 0.3 0.5 0.5
Overall balance, net 0.3 0.2 -1.1 -0.3 -0.1 -1.9 -1.8
External
Current account balance -10.4 -10.8 -15.0 -14.3 -12.4 -12.6 -13.6
Trade balance -63.7 -63.4 -70.7 -71.0 -69.5 -67.9 -67.8
Exports of goods and services 17.3 13.9 17.4 16.9 16.9 17.2 17.2
Imports of goods and services 81.0 77.3 88.1 87.9 86.5 85.2 85.1
Remittances, private transfers 24.4 23.2 28.2 29.1 28.9 28.9 28.4
Official grants 29.4 29.9 28.0 28.2 28.7 26.9 26.3
FDI 6.9 7.7 7.9 7.8 7.8 7.8 7.8
External debt 82.0 56.5 46.8 42.3 6.5 9.1 10.1
Exchange rate (shilling/dollar) (e.o.p) 25,065 25,761 26,039
*Assumes application of HIPC debt relief and interim HIPC assistance from the Decision Point, and MDRI and ‘beyond-HIPC’ relief at Completion Point in 2023
Notes: Central government refers to the Federal Government of Somalia.
Sources: Somali authorities, IMF, and World Bank estimates (May 2022).
23
PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - MACRO STABILITY AND DEBT RELIEF POLICY NOTE
ANNEX 2: HIPC CP FLOATING TRIGGER STATUS
HIPC Completion Point Triggers Progress
Domestic revenue mobilization
1. Adopt and apply a single import duty tariff schedule The FGS and the FMS reached agreement on the single tariff schedule, which will
at all ports in the Federal Republic of Somalia (to be submitted to Parliament for approval. Supporting customs regulations are under
also foster greater trade integration). preparation. The Customs Automated System (CAS) has been piloted first in Mogadishu
port and airport before rolling out to Bosaso, Garowe, and Kismayo.
Governance, anticorruption, and natural
resource management
2. Enact the Extractive Industry Income Tax (EIIT) Law. Cabinet approved the EIIT Bill in December 2020. The Bill has been harmonized with the
Production Sharing Agreement (PSA) to ensure consistency. The Bill will be submitted to
Parliament for approval.
3. Ratify the ‘United Nations Convention Against The UNCAC was ratified by the Somali Parliament and assented by the President in
Corruption’ (UNCAC) December 2020.
Debt management
4. Publish at least four consecutive quarterly The Ministry of Finance is making progress to improve debt reporting. Quarterly debt
reports outlining the outstanding stock of general bulletins have been published for 2020Q4, 2021Q1, 2021Q2, 2021Q3, 2021Q4, and
government debt; monthly debt-service projections 2022Q1 with Information on the outstanding stock and composition of debt liabilities and
for 12 months ahead; annual principal payment financial assets, and, where they exist, loan guarantees and other contingent liabilities,
projections (for at least the next five years); and including their currency denomination, maturity, and interest rate structure.
key portfolio risk indicators (including proportion of
debt falling due in the next 12 months; proportion
of variable rate debt; and projected debt service-
to-revenues and debt service-to-exports for the
next five years).
Social sectors
5. Establish a national unified social registry (USR) The authorities are establishing a USR with support from the World Bank, the World
as a functional platform that supports registration Food Program (WFP) and UNICEF. The USR design and development of the platform and
and determination of potential eligibility for infrastructure are progressing well. However, progress is needed on the development of
social programs the data protection and data privacy Law and operational guidelines.
6. FGS and FMS Ministers of Education (MOE) adopt On July 14, 2021, the FGS and FMS MoEs including Puntland finalized and officially signed
an agreement defining their respective roles and the revised draft education cooperation MoU at the intergovernmental meeting held in
responsibilities on curriculum and examinations Garowe. A permanent intergovernmental forum for education has been formalized. Key
agreements reached include the formation of national examination, certification, and
curriculum boards. An interim committee to develop the criteria for selection of the board
members was also established.
7. FGS and FMS Ministers of Health adopt a joint The Somalia Health Sector Strategic Plan for 2022-2026 was finalized. FGS and FMS
national health sector strategy ministers have agreed on a framework for a joint national health strategy.
Debt management
8. Publish at least four consecutive quarterly The Ministry of Finance is making progress to improve debt reporting. Quarterly debt
reports outlining the outstanding stock of bulletins have been published for 2020Q4, 2021Q1, 2021Q2, 2021Q3, 2021Q4, and
general government debt; monthly debt-service 2022Q1 with Information on the outstanding stock and composition of debt liabilities and
projections for 12 months ahead; annual financial assets, and, where they exist, loan guarantees and other contingent liabilities,
principal payment projections (for at least the including their currency denomination, maturity, and interest rate structure.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
HIPC Completion Point Triggers Progress
next five years); and key portfolio risk indicators
(including proportion of debt falling due in the
next 12 months; proportion of variable rate debt;
and projected debt service-to-revenues and debt
service-to-exports for the next five years).
Social sectors
9. Establish a national unified social registry (USR) The authorities are establishing a USR with support from the World Bank, the World
as a functional platform that supports registration Food Program (WFP) and UNICEF. The USR design and development of the platform and
and determination of potential eligibility for infrastructure are progressing well. However, progress is needed on the development of
social programs the data protection and data privacy Law and operational guidelines.
10. FGS and FMS Ministers of Education (MOE) adopt On July 14, 2021, the FGS and FMS MoEs including Puntland finalized and officially signed
an agreement defining their respective roles and the revised draft education cooperation MoU at the intergovernmental meeting held in
responsibilities on curriculum and examinations Garowe. A permanent intergovernmental forum for education has been formalized. Key
agreements reached include the formation of national examination, certification, and
curriculum boards. An interim committee to develop the criteria for selection of the board
members was also established.
11. FGS and FMS Ministers of Health adopt a joint The Somalia Health Sector Strategic Plan for 2022-2026 was finalized. FGS and FMS
national health sector strategy ministers have agreed on a framework for a joint national health strategy.
Growth/structural
12. Enact the Electricity Act and issue supporting The draft Somalia Electricity Bill was subject to consultations and was endorsed by
regulations to facilitate private sector investment Cabinet and submitted to the Parliament in December 2020. The bill will be prioritized by
in the energy sector. the 11th Parliament in its first readings.
13. Issue Company Act implementing regulations on Regulations to the Company Act of 2019 were issued in January 2021. A second set of
minority shareholder protection to encourage Regulations to the Company Act were issued in May 2022 specifically covering the issue
private sector investment of minority shareholder protection.
Statistical capacity
14. Publish at least two editions of the Somalia The Facts and Figures of Somalia has been published for 2018, 2019, and 2020.
Annual Fact Book.
25
FEDERALISM AND STATE
STABILITY POLICY NOTE
A. SUMMARY OF KEY MESSAGES agreement on expenditure and revenue assignments
remains a major source of tension.
The 2012 Provisional Constitution laid the
foundation for establishing a federal system of B. SUMMARY OF KEY ACTIONS
government in Somalia. However, agreements
concerning contentious issues have not been reached, SHORT-TO-MEDIUM-TERM ACTIONS
such as how resources should be shared between
the regions; the basis for agreeing on citizenship; a. Adopt a rules-based fiscal transfer formula between
whether a parliamentary or a presidential system the FGS and the FMS to promote predictability
should be adopted; the role of the judiciary; the and transparency in intergovernmental transfers,
security architecture (including the financing, size, and including those financed through budget support.
composition of the Somali National Army and regional
police); the status of the Banadir and Mogadishu b. Strengthen accountability, reporting, and transparency
Regional Governments; and how to address the (non)- of fiscal transfers by source of revenue to build
engagement of Somaliland in the Constitutional Review confidence between different levels of government.
Process. This Note focuses on the fiscal federalism
dimension of the ongoing debates. c. Harmonize FGS and FMS financial management
systems (BISAN and Somali Financial Management
Some agreements have been reached between Information System [SFMIS]) in the areas of
the Federal Government of Somalia (FGS) and the budgeting, chart of accounts, and Government
Federal Member States (FMS), such as the sharing Finance Statistics (GFS) integration.
of revenues from fisheries licenses; an interim
agreement concerning the division of functions and d. Support intergovernmental coordination platforms,
assignment of revenues; service delivery agreements such as the FMFF and the IGFF-TC to ensure the
in health and education; and defining the functions of timely availability of policy advice and options to the
the FGS and FMS related to security. These agreements Ministers of Finance.
have been supported by the Finance Ministers Fiscal
Forum (FMFF),³⁴ which is aided by the Intergovernmental MEDIUM-TO-LONG-TERM ACTIONS
Fiscal Federalism Technical Committee (IGFF-TC).³⁵ The
FGS routinely makes fiscal transfers to the FMS, and a. Agree on the management, administration, and
these are increasing year on year. In the years 2018, 2019, redistribution of tax revenues from international trade to
to 2020, the FGS transferred US$30 million, US$27.20 allow for the non-port FMS to have access to revenues.
million, and US$80.30 million, respectively. Although
progress has been made in areas such as the publication b. Prioritize functional assignments for big-ticket
of consolidated government accounts, the lack of expenditure items, such as security.
³⁴ The Finance Ministers Fiscal Forum (FMFF) is a platform financed under the Recurrent Cost and Reform Financing (RCRF) program. This program
brings finance ministers together to discuss and agree on inter-governmental priorities.
³⁵ The Inter-Governmental Fiscal Federalism Technical Committee (IGFF-TC) is a technical committee that discusses intergovernmental policies at a
technical level and provide options for adaption by the FMFF.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
c. Define revenue assignments, revenue sharing, and in Somalia is trade-related taxes. Currently, the FGS
assignment of expenditure responsibilities between and the FMS collect insufficient revenues to pay for their
FGS and FMS as part of a renewed constitutional core expenditures. As such, they are reliant on external
review process. financing in the form of grants. The fiscal situation is
further constrained for the FMS that lack operational
C. WHERE SOMALIA STANDS NOW ports, such as Galmudug, Hirshabelle and the South West
State. Instead, they are reliant on fiscal transfers from
An incomplete political settlement the FGS. Thus, revenue potential is limited. Furthermore,
there is competition for taxation between the regions,
The 2012 Provisional Constitution provides the and the FGS enjoys greater influence in states dependent
framework for Somalia to establish a federal system on transfers.
of government. Notionally, Somalia is comprised of the
Federal Government of Somalia, five established Federal The Revenue Administration Law does not explicitly
Member States (Galmudug [GSS], Hirshabelle [HSS], specify the separation of powers between the
Jubbaland [JSS], Puntland [PSS], and Southwest State FGS and the FMS. Article 1 refers to Schedule 1 of the
[SWS]), and the self-declared Republic of Somaliland. Revenue Authority Establishment Act. This Schedule lists
However, the Provisional Constitution does not define the laws (revenue sources) that fall under the jurisdiction
intergovernmental fiscal relations or authority over of the Administration Law. The concerns raised by the
fiscal resources. A constitutional review process was FMS are whether that law is of a general enabling nature,
held between 2015 and 2021 with the aim of defining thus requiring adherence to certain principles — or
key issues of federalism. However, agreements were not whether is it prescriptive, or proscriptive (prohibiting the
reached, and a further review of the Constitution has FMS from certain actions). Other concerns are related
been deferred to the 11th Parliament. The main areas to excise duties, value-added tax (VAT) for goods and
of contention concern reaching agreements on how services, income tax (including taxes on property and
resources will be shared between the regions. property tax rates), payroll taxes, stamp duties, road
taxes, and customs. Most of the articles of the law refer to
Some small steps are being made to reach interim general provisions appropriate to legislate at the national
agreements level. These provide consistency to the administration of
revenue across the nation. However, broad consultations
Despite challenges, the inter-governmental fiscal and consensus are needed between the FGS, the FMS,
forum has reached key interim agreements. The Baidoa and, where possible, the districts. One immediate
Agreement of June 2018 stipulates how petroleum resources discussion concerns tax assignment and collection
will be shared among the regions. However, the agreement between the revenue teams at the FGS and FMS levels.
is biased toward natural resource-producing districts. As
such, it could exacerbate current inequities. An agreement Lack of a clear rules-based allocation mechanism
was also made to share resources from external sources,
such as budgetary support between the FGS and the FMS Intergovernmental transfers are currently made on
on a 60:40 basis. However, it was done without providing an ad hoc basis, resulting in a lack of predictability
further details on how such resources would be distributed and transparency as to how resources are shared.
among the FMS. A preliminary fisheries revenue-sharing The FGS does have a notional formula in place to support
agreement was reached in March 2019. It stipulated how transfers to the Banadir Regional Administration and
revenues from licenses would be shared. However, as of states without operational ports. However, a formula
2022, the agreement has not been fully implemented. to guide the sharing of resources from budgetary
support has not been operationalized. Furthermore, no
Heterogeneity in tax revenue collection and a lack of agreement has been made regarding how resources from
agreement about revenue-raising powers trade-related taxes can be shared. This lack of agreement
concerning an intergovernmental transfer mechanism
The largest source of domestic resource mobilization constrains the ability of states without operational ports
27
PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - FEDERALISM AND STATE STABILITY POLICY NOTE
to provide basic services and security for their citizens. Continuous engagement between the FGS and the
Furthermore, ad hoc transfers lead to uncertainty, as well FMS using existing platforms such as the FMFF and the
as the potential for fueling mistrust. IGFF-TC will be crucial in making progress concerning
the harmonization of legislation and strengthening
Agreements on big-ticket expenditure items are pending, of revenue collection and budget execution. Currently,
particularly in the security sector there is limited capacity at the FGS and the FMS levels to
support the ongoing intergovernmental dialogue. This
The largest area of expenditure is the security sector. makes it difficult for the FGS and the FMS to produce very
Despite efforts made during the London Conference in strong policy options that can be discussed, agreed upon,
2017 to integrate regional and federal forces into a coherent and implemented. The technical deficiency also leads to
national security architecture, decisions about how to assign poor preparations for intergovernmental dialogue. This
responsibility for internal security are still pending. Both the results in agreements that are not implementable, as well as
FGS and the FMS are involved in the provision of internal agreements that can potentially create more inequality.
security, thereby making it a challenge to adequately assign
resources at the different levels of government. Although D. RECOMMENDATIONS FOR HOW SOMALIA CAN
functional assignments are pending for multiple sectors, MAKE PROGRESS
the lack of an agreement is particularly problematic for
the security sector, since it consumes the largest share of To make progress on the fiscal federalism agreements,
resources. Importantly, the dominance of security sector a balance is needed to support the autonomy of the
expenditures means that there is limited fiscal space to fund FMS while also promoting state-building and unity.
other sectors such as education and health. Measures are also needed to strengthen the capacity of
revenue collection, intergovernmental dialogue, and service
Lack of harmonization of financial management systems delivery in the health and education sectors. This will help
at the FGS and FMS levels to increase state legitimacy and improve the trust deficit
between the state and citizens.
The FGS and FMS are using different public financial
management systems to support budgeting, the Reach interim agreements concerning the sharing of
chart of accounts, and GFS integration. The FGS and revenues from international trade taxes
Puntland are using SFMIS (custom developed), whereas
Galmudug, Hirshabelle, Jubbaland, and Southwest are The collection of international trade taxes to the FGS
using the Bisan system (a commercial package customized could be centralized and fiscal transfers increased to
for the financial management system [FMS]). The two all FMS (with a large share of revenues remaining
systems have been highly customized due to the different in the collecting ports). This could potentially improve
needs and preferences of the FGS and the FMS. As a result, the efficiency of revenue collection and allow for a more
the generation of timely and reliable consolidated financial equitable distribution of revenues to all FMS. This is a
data regarding budget execution results is a challenge for challenging task that requires political leaders to reach a
the FGS and the FMS. This is because they lack a unified/ consensus, which would require high level engagement
standard budget classification and chart of accounts for e.g., the National Security Council (NSC) after agreement
all SFMIS platforms. Subsequently, it is difficult to produce is reached at the Finance Ministers Fiscal Forum (FMFF)
consolidated budget results directly from the existing supported by the IGFF-TC.
SFMIS platform. On November 23, 2019, the FGS and the
FMS agreed to harmonize their budget cycle/calendar to An illustrative example of how resource sharing could
ensure that all fiscal allocations (grants) are budgeted by support equity and learning
appropriately; however, it has yet to be implemented.
For example, the FGS, Puntland, and Jubbaland could
Technical support to guide intergovernmental fiscal contribute 20 percent of trade-related taxes into an
relations is available and can be strengthened equalization fund. This fund would be redistributed to all
the entities (including the Banadir Regional Administration
28
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
[BRA]). It would be based on a fixed share to reflect monitoring structures established to ensure compliance
the respective absorption capacity and revenue share and build trust.
contributions. The formula could be regularly adjusted based
on revenue evolution and absorption capacity. An increased Prioritize functional assignment for big-ticket
share for port states could be built in, including a ceiling of expenditures such as security
minimal revenues collected every year (for instance, with an
extra 80-90 percent remaining in the collecting port). The Given the dominance of security-related concerns and
FGS would manage the equalization fund, which would also expenditures, further efforts are needed to advance
serve as a trust-building instrument. In a short period, the discussions about functional assignments in the
poorest FMS would increase their revenues. Puntland would security sector, furthering the decisions reached as part
continue to be the largest FMS in terms of revenues, and the of the London Agreement³⁶ on the security architecture
FGS would continue to collect the largest— and maintain — — with a focus on functional assignments for internal
the largest share of revenues. Even though revenues would security. For example, the FMS with limited own-source
not grow much for Puntland/Jubbaland, the FGS would revenues could benefit from a larger FGS-financed Somali
acknowledge the administration of trade taxes in both FMS. National Army (SNA) presence to manage the security
within the state. This would allow them to increase spending
Review and update intergovernmental agreements on social sectors, thus helping to improve state legitimacy.
The fisheries agreement needs to be revived, as it Harmonize the legislative framework
has not been operationalized in 2021. The current
fisheries agreement will be in place until a new agreement The FGS and the FMS will need to intensify
is reached and then replaced. The Baidoa agreement could harmonization discussions of the budget process,
be reviewed to avoid the creation of horizontal inequities expenditure management, and reporting. This will
between producing FMS/Districts and non-producing ones. help to deepen accountability and transparency at the
FGS and FMS levels. The ongoing harmonization work on
Adopt and implement a rule-based transfer formula that the Chart of Accounts, budget process, and reporting will
is anchored in strong analytical input help Somalia to improve service delivery to its citizens.
For harmonization to succeed, though, there is a need to
The IGFF-TC is currently discussing options to adapt a ensure stronger coordination and technical input. One key
fiscal transfer formula to allow for a more predictable agreement that is needed concerns the revenue collection
grant transferred to the FMS. This would follow the Addis assignment responsibilities between the FGS and the FMS.
Ababa revenue-sharing agreement ratio of 60:40 between
the FGS and FMS, respectively. A rule-based transfer Build the capacities of the Intergovernmental
formula will address some of the FMS concerns that fiscal Technical Committees
transfers are used for political purposes by punishing
perceived enemies of the FGS and rewarding allies. It will The FGS and the FMS will need federalism experts
also build trust between the FGS and the FMS, leading in the short term to support ongoing reforms and
to future intergovernmental agreements. Currently, the enhance the effectiveness of intergovernmental
IGFF-TC is looking at four parameters including: equal bodies, such as the Federalization Negotiation
share, revenue enhancement, expenditure management, Technical Committee (FNTC), the IGFF-TC, and the
and audit and reporting. Ongoing discussions between FMFF Committees. However, for sustainability purposes,
the FGS and the FMS have yet to come up with a concrete the capacity of the IGFF-TC and the Secretariat should be
formula. A fiscal transfer formula should be prioritized, and strengthened to take the lead in intergovernmental work.
³⁶ The 2017 London Agreement between the FGS and the FMS on Somalia’s national security architecture is a first step in trying to define the
respective responsibilities of the federal and state governments security structures. The agreement defines the number of federal forces (18,000)
and the police forces (32,000) and their composition. The agreement stipulates that the federal government will be responsible for the salaries and
support requirement of the Somali National Army while the Federal Member States will be responsible for the salaries and support of the state
police forces. The London Agreement has not defined the mechanism for the contribution of forces nor the respective responsibilities.
29
PUBLIC FINANCIAL
MANAGEMENT POLICY NOTE
A. SUMMARY OF KEY MESSAGES B. SUMMARY OF KEY ACTIONS
The Federal Government of Somalia (FGS) and the RECOMMENDED SHORT-TERM PRIORITY ACTIONS
Federal Member States (FMS) have made strong TO ADDRESS PFM CHALLENGES
progress in building a solid foundation for public
financial management (PFM) in a short time span. To improve the preparation and effective
Indeed, the foundational elements of PFM have been implementation of the budget:
established. However, the remaining reform challenges • Implement a predictable grant allocation formula for
involved in strengthening PFM systems are significant. the FGS transfers to the FMS.
More specifically, there are challenges in three key areas: • Reduce manual, cumbersome payment processes to
decrease delays in payments.
• The legal and regulatory frameworks across the
FGS and FMS are fragmented and need to be To promote greater transparency and accountability
strengthened. Both the FGS and FMS have passed in PFM systems:
modernized PFM Acts; however, these laws lack a • Pass and enact the last FGS Audit Bill for an
coherent set of high-quality financial regulations to effective OAG.
support their implementation. Further, the FMS Acts
do not recognize intergovernmental fiscal relations, • Harmonize accounting and reporting practices between
thereby hampering harmonization efforts. the FGS and FMS. This will serve as a foundation for
consolidating fiscal information. Furthermore, enhance
• The budget preparation and implementation the disclosure of financial accounts and ensure timely
processes of the FGS and FMS are weak, thus public access of financial reports.
creating risks for fiscal sustainability. This includes
inaccurate revenue forecasting, weak commitment • Maintain the Financial Governance Committee
and payroll controls, inefficient PFM procedures, and (FGC) to continue to build trust in the country’s
limited staff capacity. These challenges pose risks for financial governance.
fiscal sustainability, especially since Somalia’s wage bill
as share of total spending is already at record highs. RECOMMENDED MEDIUM-TERM PRIORITY ACTIONS
TO ADDRESS PFM CHALLENGES
• Weak accountability and transparency in
public finances diminish public trust in state To strengthen and harmonize the legal frameworks:
institutions. The internal and external control • Strengthen the legal and regulatory framework
environment in the FGS and FMS remains weak. in the FGS and FMS and harmonize the PFM Acts
The FGS has an outdated Audit Bill, undermining the to improve intergovernmental fiscal relations and
effectiveness of the Office of the Auditor General efficiency across Somalia.
(OAG). Moreover, large amounts of off-budget
operations bypass PFM control systems, thus To improve the preparation and effective
increasing the risk of misappropriation of funds. implementation of the budget:
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
fiscal reporting capabilities³⁸ and operational capabilities
• Strengthen budgeting processes, improve controls to manage inter-governmental fiscal transfers, which
for wages and salaries, review grade assignments, contribute substantially to enabling fiscal federalism;
and reduce and formalize off-payroll payments. and (iii) the deployment of FMISs³⁹ at the FGS and in all
FMS, including the establishment of basic payroll and
• Institutionalize capacity building of staff both at commitment control processes. The connection of the
the Ministries of Finance (MoF) and line Ministries, security sector payroll to the FMIS, coupled with biometric
Departments, and Agencies (MDAs) in the FGS registration of all Somalia security sector forces, allows
and FMS. verification of all payments, including direct payments
to individual accounts —a significant change from just
To promote greater transparency and accountability a few years ago, when payments were distributed in
in PFM systems: cash through the command chain providing opportunity
• Prepare and improve citizens’ budgets and ensure for corruption and misappropriation. To complement
that these are published in a timely manner. improved controls, the FGS has created central purchasing
Moreover, engage citizens during the budgeting contracts for major supplies to the Somalia National Army.
process of the FGS and FMS. The reform has yielded savings by reducing discretionary
and unsupervised spending. In addition, the FGC as the key
• Strengthen internal audit functions and improve the dialogue platform on financial governance has improved
use of the financial management information system the transparency and accountability of Somalia’s public
(FMIS) for all government transactions to increase finance. However, the remaining reform challenges to
control and accountability by the FGS and FMS strengthen PFM systems are significant. More specifically,
Ministries of Finance. these challenges are in three key areas:
• Bring donor-financed activities into government Legal and regulatory framework: Significant effort
plans and budgets. has gone into strengthening the legal and regulatory
framework in the FGS and FMS; however, further
• The FGS should gradually transition from a monthly enhancements of the PFM Acts and harmonization
to a quarterly budget release process to enhance the between the FMS and FGS PFM Acts are critical to
predictability of funding to MDAs. strengthening PFM.
C. WHERE SOMALIA STANDS NOW In December 2019, the FGS passed a modernized
PFM Act, with supporting regulations still under
The Somali government, both at federal and state development. Recently, all four south-central states
level, have made strong progress in building a did the same. The PFM Act of Puntland has been drafted
solid foundation for PFM in a short time span. This and is in the process of being adopted. The new legal
is particularly noteworthy, as it generally takes a long frameworks provide a strong impetus for improving PFM
time to build fiscal institutions, especially in post-conflict performance. They improve consistency in the budgeting
settings.³⁷ The foundational elements of PFM have been process, encourage the timely approval of the budget,
established in the FGS and FMS. Key achievements include strengthen transparency in public finances, and require
(i) the enactment of modernized PFM laws by the FGS timely reporting. However, there is an urgent need to
and FMS, marking the first legal reforms in this area for develop a coherent set of high-quality PFM regulations to
more than a half a century; (ii) the establishment of basic support the implementation of the PFM Acts.
³⁷ Reforms can often span several political cycles. For more information, see: World Bank. 2011. World Development Report: Conflict, Security, and
Development. Washington DC: World Bank.
³⁸ For example, the FGS and the majority of states prepare their annual accounts using International Public Sector Accounting Standards (IPSAS)
Financial Reporting under the cash basis of accounting.
³⁹ These systems support workflow, transparency, and the internal control framework of government finances.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - PUBLIC FINANCIAL MANAGEMENT POLICY NOTE
Moreover, whereas the FMS assume increasing government capacity to develop forecasts results in
responsibility for financial resources, the PFM laws unrealistic fiscal frameworks. This in turn leads to budget
of the FMS are silent on the roles and responsibilities cuts, thereby negatively affecting expenditure plans.
of the FMS in intergovernmental fiscal relations. In
view of the increasing fiscal transfers to be expected in With respect to budget implementation in the FGS,
the coming years, it will be important that the FMS laws improvements are needed in two main areas where
provide a legal basis for coordination processes, starting PFM procedures critical to achieving efficiencies
with budgeting. Whereas the FGS PFM Act includes in public spending. Firstly, current manual, duplicate
provisions that apply to the FMS, the FMS laws were passed and cumbersome payment processes lead to delays
at a time when discussions concerning intergovernmental in payments and increase the cost of services.
fiscal relations were just beginning. Hence, they do not Secondly, monthly budget releases for all expenditure
yet recognize intergovernmental fiscal relations. The FGS’ categories provide an inadequate time horizon to
PFM Acts provide an overarching framework for coherent plan commitments and are likely to cause payment
and consistent practices. However, each FMS has its own arrears. Addressing such inefficiencies will be important
PFM Act to guide detailed arrangements, which results in to ensuring the achievement of Somalia’s national
fragmented practices among the FGS and FMS, thereby development objectives.
weakening the harmonization agenda.
The FMS PFM systems are at an earlier stage in the
Budget preparation and implementation: Consistent PFM building process than the FGS. They are facing
with the prevailing problems of fragile countries, even greater challenges in terms of manual, cumbersome
Somalia has weak budget preparation and budgeting and payment processes. As such, they face
implementation processes, including commitment additional challenges because of the low predictability
and payroll controls, manual, cumbersome PFM of funds they derive from the FGS. There is weak
procedures, and limited staff capacities. coordination between the FGS and FMS, and transfers
of funds (grants) are mostly done on an ad-hoc basis.⁴²
In line with capacity-building efforts, budget These are not supported by the budget allocation at the
preparation and execution processes at the FGS and FMS level. The FGS has made progress by integrating the
FMS levels have improved to some extent in recent FMS budgets into the national budget for the first time
years. However, there is a significant variance between in 2021. However, a predictable grant allocation formula
the original budget and the actual expenditures in all of to the FMS has yet to be defined and implemented. This
Somalia’s governments. Since the FGS and all FMS (except becomes particularly urgent, since the FGS fiscal transfers
Puntland) spend more than half of total expenditures on the to sub-national governments are growing annually and
public wage bill,⁴⁰ low budget outturns in this area require faster compared to other revenues.
particular attention. The persistent existence of security
personnel and civilian administration on non-formal payroll In addition, public finance capacities are currently
systems⁴¹ calls into question the credibility of the original limited in the FGS and FMS, especially in the
budgets as a tool for channeling funds to policy priorities. Galmudug, Hirshabelle and South West States,
especially in terms of handling an increase in funding.
Moreover, the Federal Government of Somalia’s The MDAs are not sufficiently staffed, and many of the
increasing percentage of adjustments to the original personnel are not sufficiently skilled. Hence, there is a
budget in the past years further undermines budget high dependency on external consultants to keep day-to-
credibility. In both the FGS and FMS, insufficient day PFM operations running.
⁴⁰ Ibrahim El Ghandour and Gaël Raballand. “Public Wage Bill Management: Trends and Way Forward.” (Public Expenditure Review, 2020).
⁴¹ Abyrint Consulting. Human Resource economics and management in the Federal Government of Somalia and the Federal Member States. Quarterly
report #16. (World Bank, 2020).
⁴² World Bank. “Public Expenditure Management Assessment Report of the Federal Member States of Somalia.” Unpublished. (Washington, DC:
World Bank, 2021).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Accountability and transparency: It is common that for all expenditure streams. Moreover, the Financial
formal oversight mechanisms, and transparency and Management Information Systems of the FGS and
horizontal accountability in fragile states lag behind FMS are a key tool used to implement the internal
other PFM dimensions.⁴³ However, the urgent need to control framework; however, they have not yet been
increase trust in the Somali Government’s stewardship independently reviewed to ensure their integrity.
role requires the prioritization of transparency and
accountability in the country’s public finances. • Harmonizing Accounting and Reporting in the
FGS and FMS: Reliable and timely national fiscal
Key issues undermining greater transparency and information is fundamental to fiscal transparency, as
accountability include the following: well as informing governmental decision makers and
international partners. Information exchange between
• Pending Audit Bill: The laws on sovereign audit have the FGS and FMS is especially essential to furthering
been enacted in each of the new FMS. However, the fiscal federalism, enhancing cohesiveness, and
new FGS Audit Bill has been waiting to be passed for ensuring stability. Efforts are underway to harmonize
nearly 1.5 years. Meanwhile, the Federal Office of the the frequency and format of reporting and ensure
Auditor General relies on the old audit law from 1972, that the budgeting and accounting coding structures
which is outdated. As such, it poses a major constraint are harmonized across the FMS and the FGS in
to the OAG in effectively performing its function. concertation with the International Monetary Fund’s
Enacting and implementing the new Audit Bill will Government Finance Statistics Manual (GFSM) 2014.⁴⁶
have an important positive impact on the OAG’s It is also important they continue to be harmonized.
operations, structure and independence, which are key Furthermore, it is crucial to capture these developments
to holding the executive branch account for the use of in the PFM legal and regulatory framework in the FMS.
public funds. Most⁴⁴ FMS Audit Bills are adequate, but
are not being implemented. For example, although • Extra-Budgetary Activities: A large portion of
the FMS laws provide financial and administrative donor-funded operations implemented by the MDAs
independence, in practice, the offices of the Auditors of the FGS and FMS are off-plan and off-budget.
General are subject to the control of the Ministries of The MDAs that receive funding from donors incur
Finance and Public Service Commissions. expenditures that are not known to the MoF (off-
budget), thereby bypassing the FMIS and its internal
• Internal Control Environment: Effective internal controls when processing payments.
control enables a government to manage public funds
in an efficient and accountable manner.⁴⁵ Currently, • Citizen Engagement: None of the FMS has yet
internal audit functions are weak, and many PFM prepared a citizen’s budget. Although the FGS
practices are fragmented, both in the FGS and FMS. prepared a citizen’s budget in the last three years,
For example, although the FGS established payroll only the 2018 and 2019 citizen budgets were
systems for the security and social sectors, not all available online. Also, they were only presented
payment transactions are processed through the in English, which limits their dissemination and
FMIS. This poses risks of the misuse of funds during comprehension. Moreover, neither the FGS nor the
the expenditure process. Further reform efforts are FMS have platforms for citizen engagement in their
required to fully operationalize commitment controls budget processes.
⁴³ Porter, Andrews, Turkewitz and Wescotttz. Managing Public Finance and Procurement in Fragile and Conflicted Settings. (Washington, DC: World
Bank. / World Bank, 2011). “Public Financial Management Reforms in Post-conflict Countries: Synthesis Report. (Washington, DC: World Bank, 2012).
⁴⁴ Puntland is in the process of enacting an updated Audit Bill, which will strengthen the OAG’s independence.
⁴⁵ Experience from other fragile, conflict- and violence-affected countries, such as Liberia and Kosovo, indicates that robust efforts to strengthen internal
controls can also have broader effects in terms of improving the perceived, overall control of corruption in the country. World Bank. “Public Financial
Management Reforms in Post-conflict Countries: Synthesis Report.” (Washington, DC: World Bank, 2012).
⁴⁶ The GFSM (2014) describes the latest macroeconomic statistical framework designed to support fiscal analysis.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - PUBLIC FINANCIAL MANAGEMENT POLICY NOTE
D. HOW SOMALIA CAN MAKE PROGRESS IN institutionalizing training, and retaining skilled staff
STRENGTHENING ITS PFM SYSTEMS is critical to reducing a dependency on consultants.
As Somalia’s government budget increases, a strong v. Improve budget credibility and reduce wage bill
PFM system will constitute a core element of state- expenditures by: (i) strengthening budgeting
building and peace-building efforts, thus ensuring processes (for example, bottom-up budgeting and
the efficiency, effectiveness, and equity of spending. revenue forecasting); and (ii) improving controls
The following recommendations address each of the for wages and salaries, such as enforcing limits
three priority areas identified in section C. on new hiring, reviewing of grade assignments
and administration of promotions, and creating
Strengthening and harmonizing the legal frameworks appropriate rules for the use of allowance
allocations; and (iii) reducing and formalizing off-
Harmonizing the legal frameworks is critical payroll payments.
to creating a sound legal platform for inter-
governmental fiscal relations, where the PFM-related Promoting greater transparency and accountability
relationships, roles, and responsibilities between in PFM Systems. Increasing the legitimacy of the
the FMS and FGS are defined. This requires a detailed Somali state institutions requires the prioritization of
review of both the FGS and FMS legal frameworks to transparency and accountability in the country’s public
determine what changes need to be made. Furthermore, finances. Recommended priority actions include:
it is important for the FGS and FMS to develop a coherent
set of high-quality financial regulations to support the i. Pass and enact the FGS Audit Bill for a well-functioning
implementation of their PFM Acts. Office of the Auditor General. The FMS should
prioritize the implementation of their audit laws.
Improving preparation and effective implementation
of the budget. There are four recommended key ii. Strengthen internal audit functions and improve
actions for making improvements in this area: the use of the FMIS by the FGS and FMS for all
government transactions, thereby increasing overall
i. Reduce manual, duplicate and cumbersome control and accountability by the MoFs.
payment processes to decrease delays in payments
and reduce the cost of services. iii. Prepare a road map and implement it on a step-
by-step basis to bring donor-financed activities into
ii. The FGS should gradually transition from a monthly government plans (and eventually into budgets) and
to a quarterly budget release process to enhance the harmonize them around country PFM systems. In this
predictability of funding to the MDAs. regard, donors also need to do their part. Therefore,
it is crucial to put in place a mechanism to coordinate
iii. The FGS should implement a predictable grant closely with donors to build fiscal capacity.
allocation formula for transfers of funds to the FMS.
This formula should initially be introduced through iv. Conduct an independent quality assurance review of
a financial regulation, and at a later stage, based on the FMIS in the FGS and FMS, and develop and adopt
lessons learned, be incorporated into the legislation a comprehensive governance policy and sustainability
to increase its binding nature. plan for the FMIS.This is needed to ensure their reliability
as a tool to ensure accountability and transparency.
iv. An increase in the fiscal envelope will warrant
intensive capacity building of staff at the MoFs v. Harmonize accounting and reporting practices between
and line MDAs in the FGS and FMS. Attracting, the FGS and FMS as a foundation for consolidating
34
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
fiscal information. Such efforts should be accompanied budget is published in a timely manner and that
by enhancing the disclosure of financial accounts⁴⁷ and it is translated into Somali, thus increasing public
ensuring timely public access of financial reports. dissemination and comprehension.
vi. Maintain the FGC to continue to build confidence in Given the fragmentation of PFM systems between FGS
Somalia’s financial governance. and FMS as well as within governments, a more holistic
approach to PFM reforms will ensure sustainability of
vii. Establish platforms to facilitate citizen engagement current and future reforms. For example, although many
and obtain feedback in the planning and budgeting reforms have been undertaken in the FMS, they have not
process of the FGS and FMS. This requires the been undertaken as part of a broad-based PFM strategy. A
preparation of citizens’ budgets in all FMS. The strategic view to reforms will be particularly important to
FGS needs to ensure that its citizens’ guide to the supporting an increase in resources to the FMS.
⁴⁷ This includes disclosures about financial assets and liabilities, including contingent liabilities.
35
TRADE AND INTEGRATION
POLICY NOTE
A. SUMMARY OF KEY MESSAGES linking Somalia’s ports to Horn of Africa hinterlands.
Somalia’s location offers substantial advantages • Harmonize customs regimes across Somalia
for international trade, being relatively close to ports, which can also support an integrated national
the markets of the Gulf Cooperation Council (GCC) data collection system.
countries, COMESA and the large and rapidly growing
South Asia region. Somalia has the longest coastline • Tackle supply-side constraints to trade to take
in Africa and ports that are close to major international advantage of areas where Somalia has comparative
maritime routes. There is a huge potential to expand and competitive advantages including livestock,
economic engagement between Somalia and the rest of vegetables, and small-scale manufactured products,
the world including through diversification of the trade such as fish oil and processed fish.
basket beyond primary goods. However, three decades of
conflict, and continued fragility have eroded the country’s • Establish institutional arrangements to enable
manufacturing and agricultural production capacity trade payments to go through formal banking
and led to an exodus of the skilled workforce. Somalia’s channels to facilitate trade and increase the
fragmented markets, poor regulatory framework and economic benefits of trade.
weak institutional capacity contribute to higher trade costs
and hinder efforts to increase private sector development. • Enhance the quality of existing agricultural and
Multiple checkpoints, infrastructure constraints related to fish exports and increase their production by
poor energy and roads in strategic trade corridors and strengthening trade promotion efforts.
limited access to finance are substantial barriers to trade.
In addition, the COVID19 pandemic interrupted Somalia’s • Step-up public-private dialogue on trade and trade
domestic and international trade. As the country emerges policy to enhance both domestic and international trade.
from the pandemic, developing international trade can
promote efficiency, knowledge diffusion, technological • Support access to information for investors
progress and contribute to inclusive growth and poverty and traders through further rolling out the trade
reduction. Trade and trade policy can help mitigate the information portal to support access to trade
risk of conflict by opening opportunities and creating jobs. procedures, documents, and fees requirements.
B. SUMMARY KEY ACTIONS • Invest in cold storage and improve food safety
practices to enable Somalia to move from livestock
SHORT-TO MEDIUM-TERM PRIORITIES: to meat and developing new seafood.
• Address the drivers behind geographic LONGER-TERM PRIORITIES
segmentation, such as illegal checkpoints and high
transportation costs within the country. • Increase and diversify exports towards a more
sophisticated range of products, when the
• Enhance trade integration within Somalia, security situation improves and adopt climate-smart
focusing on the most strategic transport corridors agricultural practices.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
• Enhance efforts to support regional integration which further limits the potential for implementing
through the formalization of cross-border trade to an integrated national trade strategy. Regions with
create sustainable employment opportunities and major ports such as Mogadishu, Bosaso and Jubaland
better sources of income. have separate customs regimes and compete for trade
flows and trade-related taxes. The existence of multiple
• Strengthen the capacity of Somalia Bureau of tax regimes limits the ability to develop and implement
Standards to build producers’ capacity to improve a national trade strategy. Efforts that are underway to
hygiene and quality to minimize transboundary modernize and harmonize customs regimes need to be
diseases outbreak and improve animal health and speeded-up.
better veterinary controls.
Somalia’s narrow production base is reflected in its
C. WHERE SOMALIA STANDS NOW weak export performance and its heavy dependence
on imports of final consumption goods. The country
Trade in Somalia is currently not serving its full continues to run a large structural trade deficit, averaging
potential as an engine of growth. Trade could be a 65 percent of GDP between 2018 to 2021 (Annex Table
strong positive force for economic growth, but in the 1). A poor investment climate, poor logistics, scattered
past few decades, Somalia’s trade performance has been customs procedures, and inadequate infrastructure
weak and played a limited role as a source of growth. (transport and energy) limit the supply of agricultural and
Challenges include domestic market fragmentation which manufactured goods.
raises costs for producers, multiple customs regimes,
a narrow economic base marked by poor economic Somali exports are dominated by very few products
diversification and vulnerability to external shocks. directed to too few markets. Dominated by livestock,
Conflict and fragility depreciated the domestic productive Somalia’s top five export products accounted for an
capacity by destroying human (education and health) and estimated 83 percent of total goods exports at year-
physical infrastructure (roads, energy, irrigation), severed end 2018, with three destinations – the United Arab
value chains as links between producers, traders, and Emirates, Oman and Saudi Arabia – absorbing 82
consumers frayed and unraveled with violence, eroding percent of Somali exports (Annex Table 2). In its quest
trust between social groups. for export diversification, Somalia’s most promising
products are new fish and shellfish species and agro-
Economic fragmentation has raised costs for food products such as sesame oil, meat, and processed
producers, making it harder for them to compete fruits (see annex 1).
locally with imports, as well as in foreign markets
as exporters. The main drivers of this geographic Whereas Somalia has an open trade regime, it is
fragmentation are transport costs, which are particularly more reflective of the country’s lack of a proper
high in the south and central regions. Elevated costs are trade governance framework than a deliberate
mostly due to illegal checkpoints and multiple taxation policy stance. Somalia lacks a proper trade governance
paid to various state and non-state actors, as well as poor structure which encompasses weak customs and border
infrastructure. Despite the high domestic trade costs, the management processes, import/export licensing,
fragmented domestic markets have encouraged small- reporting requirements, SPS and technical regulations,
scale, cross-border trade in low-value items in Somalia’s and the complex of commercial, investment, and financial
border regions, as border markets are often better regulations that are mainly domestic in objective but
integrated with markets in neighboring countries than which strongly influence trade. In addition, the country
with other domestic markets. Developing an integrated faces acute shortage of officials endowed with the
national economy would enable larger-scale, commercial technical knowledge and institutional experience required
production of higher value exports. for informed trade policy making. Such shortages have
hampered the government’s institutions involved in trade
Somalia has multiple customs regimes, where policy formulation, inhibited the design of a coherent
regions with major ports compete against each other, trade strategy and weakened the quality of the inter-
37
PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - TRADE AND INTEGRATION POLICY NOTE
agency coordination and external stakeholder processes (World Bank 2020). Building effective public-private
required for effective trade governance. dialogue mechanisms on trade-related issues linking the
FGS to the FMS can support the accelerated progress
Access to trade-related information was cited as a in harmonizing customs regimes and in turn encourage
key constraint by majority of traders in Mogadishu. developments towards a national trade strategy.
As per the survey carried out by Ministry of Commerce
and Industry (MoCI) with IFC support in 2020 focusing on A national trade strategy could build on efforts to
Mogadishu based importers and exporters, 83 percent harmonize multiple customs regimes and provide a
reported facing difficulties in accessing information on basis for engaging the private sector. A national trade
trade procedures, documents and fees requirements. strategy can help to provide greater direction to the
private sector on potential sectors to invest in alongside
D. HOW CAN SOMALIA MAKE PROGRESS? efforts to improve supply side constraints to domestic
production. There should also be greater emphasis on
Strengthening internal economic integration will also improving private sector representation in the current
increase external competitiveness and help realize coordination structures such as National Trade Facilitation
the potential for trade to contribute to growth and job Committee (NTFC).
creation. By improving domestic integration, producers
would face lower costs to allow them to compete with Somalia can enhance its export earnings and reduce
imports and encourage trade with foreign markets as vulnerability to shocks by expanding its exports
exporters (World Bank 2021). Addressing barriers to to traditional markets where potential demand
trade would involve addressing multiple taxation and remains untapped as well as to new markets beyond
checkpoints, upgrading infrastructure (energy and road the Gulf region. Beyond livestock, gums and resins
transportation) in strategic corridors in Somalia and the (frankincense and myrrh), fruit, and meat show potential
Horn of Africa (HoA), integrating communities into corridor for increased sales, with East and South Asian markets
trade and facilitating trade logistics in the main border offering the greatest opportunities for growth (World Bank
markets. Broad reforms are already underway in Somalia’s 2021a). Production and export dependence on primary
energy, road and financial sectors, which hold significant commodities, particularly live animals, leaves Somalia
potential for improving economy-wide performance and exposed to external price shocks, natural disasters, and
trade competitiveness.⁴⁸ Current estimates suggest that changes in importing countries’ trade policies, such as
the annual value of Somalia’s merchandise export revenue recent Saudi restrictions on live animal imports. Both
could increase by as much as one third annually if it more animal and crop production are sensitive to rainfall
fully exploited the untapped potential to increase the sales patterns and subject to pests and diseases. The recent past
of goods it currently exports.⁴⁹ has confronted Somalia with the outbreak of diseases and
successive droughts, flooding, and infestations of desert
Somalia has already commenced the process of locusts which consume rangelands as well as crops. Each of
harmonizing multiple customs regimes, which should these episodes has hobbled Somalia’s trade performance,
be further accelerated. Moving forward, applying a highlighting the critical importance of trade diversification
single tariff schedule will involve harmonizing duty rates (World Bank 2018).
and implementing a common customs reference value
table. This involves harmonizing customs administrations As supply-side constraints are addressed, Somalia
through issuing relevant regulation as well as eliminating can gradually develop capabilities to progressively
double taxation between the FGS/FMS. Most of these produce more sophisticated and domestic
measures do not generate large revenues, but they can be value-generating products. Prospects for export
detrimental to economic activities and should be removed diversification lie with goods whose production is closely
⁴⁸ See the policy notes on the energy sector, the road sector and the financial sectors.
⁴⁹ The analysis is based on the Export Potential Map developed by the International Trade Center (ITC) www.trademap.org
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
related in the product space to items Somalia already to join the East Africa Community. In 2020, the Somali
exports. Promising products include new fish and shellfish cabinet approved the country’s membership in the
species and agro-food products such as sesame oil, meat, Africa Continental Free Trade Area (AfCFTA) treaty but
and processed fruits. The potential for export growth its ratification awaits parliamentary approval. Enhanced
varies across sectors. While considerable scope exists to harmonization of multiple customs regimes can support
increase exports of oil seeds and fish products (by up to Somalia’s long-term ambitions access the World Trade
60 percent), the growth prospects of the livestock sector Organization (WTO).
is significantly smaller (estimated at about 10 percent of
current export levels). The capacity of Somalia’s trade-related institutions
should be strengthened. Key institutions include the
Services trade also offers substantial potential, as Ministry of Commerce and Industry (MoCI), the Ministry
the value of services exports is estimated to roughly of Finance, the Office of the Prime Minister housing the
equal that of goods. Services export flows recorded Chief Negotiator for WTO accession as well as the National
in the balance of payments estimates chiefly relate to Trade Facilitation Committee, and the Somali Bureau
travel and hospitality — involving spending by visiting of Standards. Bringing together public and private
businesspeople, officials, NGOs, and the Somali diaspora stakeholders can support a national trade strategy
rather than tourists. As security conditions in the country aimed at diversifying the product and geographic range
and the Horn of Africa improve, it may be feasible for of Somali exports, attract investment and promote
Somalia to consider a strategy that focuses on transport the integration of Somali traders to markets in the
and logistics services related to international transit trade Horn of Africa, across the African continent (by
as well as on cultural and ecotourism. While the former leveraging membership of COMESA and the ACFTA)
can and should be pursued in the short- to medium- and globally, through stepped up efforts at complying
term and be tied to priority investments in the country’s with the membership requirements of the WTO.
trade infrastructure, the latter can only be expected to The Somali Bureau of Standards can support the
materialize over a longer-term horizon and result from upgrading and diversification of exports, particularly
significant improvements in security conditions and the in areas such as agriculture and the fisheries sector,
availability of a quality tourism infrastructure. which hold great potential.
Somalia can continue to step up efforts to To support access to information for investors and
strengthen regional and international trade Somali traders, the trade portal could be rolled out
agreements. Somalia has deployed a more activist to the FMS. MoCI had conducted initial engagement
trade diplomacy in recent years, reflecting the country’s with the Federal Member States and received positive
aim to assign to cross-border exchange a prominent role requests for collaboration. Implementation and uploading
in the country’s development trajectory. It has stepped of content from all FMS will require a formal coordination
up engagement in trade negotiating processes at both mechanism with FGS-FMS roles clearly defined. In
the regional and global levels. On the regional front, additional, the MoCI may require additional resources for
Somalia reintegrated the Common Market for Eastern long term sustainability and maintenance of the portal.
and Southern Africa (COMESA) in 2018 and has applied
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - TRADE AND INTEGRATION POLICY NOTE
ANNEXES
ANNEX 1: TRENDS IN THE BALANCE OF PAYMENTS
Table 1. Balance of payments, 2015¬–21
(share of GDP)
2015 2016 2017 2018 2019 2020 2021e
Trade balance 55.3 56.5 64.7 68.4 66.3 66.6 69.5
Exports of goods and services 19.5 19.3 17.7 19.1 17.5 16.9 17.9
Imports of goods and services 74.8 75.8 82.4 87.6 83.7 83.5 87.3
Income balance
o/w remittance inflows 25.0 24.7 25.4 25.3 24.4 23.2 28.7
o/w ODA grants 26.5 25.3 37.1 37.6 31.5 33.6 28.2
Current account balance 4.5 7.1 2.8 6.1 10.9 11.7 13.2
FDI inflows
Sources: SNBS, CBS, IMF, WB etc.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
ANNEX 2: TRENDS IN THE COMPOSITION AND DIRECTION OF MERCHANDISE TRADE
1. COMPOSITION OF TRADE
1.1 Merchandise exports
Somalia’s merchandise exports are concentrated in a handful of products. Livestock exports have accounted for
about 60 percent of goods exports since 2010. Sesame seeds and gold began to emerge as exported commodities after
2000, albeit from a low base from Somaliland in the case of gold. The top five exported product categories represent 83
percent of Somalia’s total exports.
Table 2. Somalia: Composition of commodity exports, 1962–2019
Live animals (00+94) 15 53 65 64 45 61
Bananas and other fruit and vegetables (05) 67 23 16 9 0.5 2
Hides, skins and fur skins, (21) 9 7 4 2 3 1
Fish and fish preparations (03) 1 2 3 9 7 6
Nonmonetary gold (97) 0 0 0.002 0.002 12 18
Charcoal and other wood products (24) 1 0.3 0.1 3 10 3
Crude animal and vegetable material (29) 1 2 5 3 2 2
Meat and meat preparations (01) 3 5 0.2 1 5 1
Sesame and other oil seeds (22) 0 0.1 0.005 1 2 4
Leather and leather manufactures n.e.s. (61) 0.08 0.2 0.39 0.2 1 1
All other exported goods 3 8 7 9 14 1
Source: World Bank staff calculations based on data from UN Comtrade.
Note: Figures show the percent of commodity exports for the top Standard International Trade Classification (SITC) divisions, based on data reported by Somalia’s trade
partners. Figures in parentheses are the two-digit (division) product code, as defined in the SITC. n.e.s. = not elsewhere specified.
1.2 Commodity imports
Somalia’s goods imports show greater diversification, although their composition shifted from industrial to
consumer imports after 1990, evidencing a marked drop in domestic productive capacity rooted in prolonged
conflict. Imports of machinery, transport equipment (mostly non-passenger vehicles and, to a lesser extent, industrial
supplies—much of which associated to public sector investments—declined sharply (Figure 2).
Imports of food, beverages, and tobacco accounted for about half of all imports after 1990. Rice, flour, pasta,
and tobacco products have consistently been leading imports since independence. A negligible import category
prior to 1990, sugar has accounted for about 15 percent of Somalia’s imports since then, though such imports fell to less
than 6 percent of aggregate imports in 2018. Somalia’s top imported products in 2018 included tobacco, sugar, rice, and
milk. Twenty products accounted for close to three fifth (58 percent) of total imports.
41
PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - TRADE AND INTEGRATION POLICY NOTE
Figure 2. Somalia: Composition of commodity imports, 1962–2019
100%
80%
Share of imports
60%
40%
20%
0%
1962-69 1970-79 1980-89 1990-99 2000-09 2010-19
7: Goods not elsewhere specified 6: Consumer goods n.e.s 5: Transport equipment 4: Capital goods (excl. transport equipment)
3: Fuels and lubricants 2: Industrial supplies n.e.s 1: Food, beverages, tobacco
Source: World Bank staff calculations based on data from UN Comtrade.
Note: Data are constructed from mirror/partner statistics. Imports are defined according to the Broad Economic Categories classification. n.e.s. = not elsewhere specified.
2. Direction of trade
The past six decades witnessed a marked reorientation in the geographic composition of Somalia’s trade, with
a trend away from Europe and towards the Middle East on the export side as well as towards regional and Asian
sources for imports. Italy was Somalia’s largest trading partner in the first decade after independence and remained
Somalia’s largest supplier and a significant export market through the end of the century. As Somali producers shifted
out of fruit production and into livestock, Saudi Arabia, Oman, Yemen, and neighboring countries became Somalia’s main
export destinations. Meanwhile, Kenya, India, and, more recently, China, progressively displaced Europe and the United
States as Somalia’s leading import suppliers.
3. Balance of trade
Import spending has exceeded export receipts in Somalia for decades, and the country’s chronic trade deficit
has increased over time. Somalia’s trade deficit (goods and services) roughly quadrupled during the 1970 and 1980s,
a period of state intervention in trade and growing macroeconomic instability. The trade gap has widened even more
since a national government was reinstated, averaging over 80 percent of GDP in years for which reliable trade and GDP
data are available.
4. Informal trade (unrecorded and small-scale cross-border trade)
Unrecorded movements of livestock between Somalia and its neighbors in the Horn of Africa are believed to
greatly exceed the amounts reported in official statistics.⁵⁰ There is also significant small-scale cross-border trade
in agricultural products and foodstuffs in areas bordering Djibouti, Ethiopia, and Kenya that are not registered in official
statistics. Such informal trade is vital to livelihoods, especially of women and youth.
⁵⁰ These estimates are compiled and summarized in World Bank (2020d), an unpublished background paper prepared for the World Bank’s Horn of
Africa Regional Economic Memorandum, 2021
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Table 2. Somalia: Destination and origin of merchandise exports and imports, 1962–2019
(share of total)
Destination of exports
Saudi Arabia 13 54 65 46 13 32
Italy 74 24 20 16 1 0.1
Yemen n.d. 0.01 n.d. 14 28 5
Oman n.d. 0.4 0.2 3 12 24
United Arab Emirates n.d. 1.9 2 7 9 26.8
India 0.1 0.003 0.1 2 7 5
Kuwait n.d. 5 0.1 2 4 1
Nigeria 0 0.2 0.1 n.d. 6 0.001
All other countries 13 16 12 12 20 6
Origin of imports
Italy 44 31 37 15 1 2
Kenya n.d. 1 2 18 21 3
United States 11 6 15 8 4 3
India 3 2 1 7 12 13
United Kingdom 8 9 6 4 2 1
Germany 8 6 7 2 0.4 6
China n.d. n.d. 0.3 1 5 22
Brazil 0.03 0.4 0.5 9 9 2
Oman n.d. 0.0001 0.1 0.1 7 4
United Arab Emirates n.d. 0 0.03 1 3 16
All other countries 26 45 31 34 35 28
Source: World Bank staff calculations based on data from UN Comtrade.
Note: Statistics are based on data reported by Somalia’s trade partners. n.e.s. = not elsewhere specified. n.d. = partner reported no exports to Somalia during the decade.
5. Export specialization and comparative advantage
Of the 173 products Somalia exported at latest count, only 34 have revealed comparative advantage (RCA)
values greater than 1 suggestive of export competitiveness.⁵¹ Such products are highly concentrated in livestock
and lightly processed animal and vegetable products. Including foodstuffs, such exports account for two thirds (65
percent) of all products with an RCA greater than 1. A major challenge resides in adding value to products endowed with
export potential. Somalia exports livestock but not meat; hides and skins but not leather or goods made from leather;
and seeds, fresh fruit, gums and resins in raw form rather than processed into other products.
• 6. Impacts of the covid pandemic on merchandise trade, 2020–21 Present table showing composition of
imports and exports, using CBS data. Maybe aggregate into quarters to make data less noisy.
• Briefly discuss livestock trade (KSA cancels the annual Haj pilgrimage but relaxes restrictions on imports outside the Haj
window; traders adapt by finding new markets; reinforce message from the body of the note about the need to diversity.
• Khat: Airport closure, social distancing, and explicit bans halt (recorded) khat imports.
⁵¹ Revealed comparative advantage (RCA) is an index developed by Bela Balassa (1965) that measures the importance of a product in a country’s
export basket relative to that product’s weight in world trade. The value of the index exceeds 1 when a product’s share of a country’s exports is
greater than its share of total world trade in all products.
43
NATIONAL AND REGIONAL ROADS
CONNECTIVITY POLICY NOTE
A. KEY MESSAGES MEDIUM TO LONG TERM
Somalia’s roads are of extremely poor quality, largely • Continue to develop sectoral institutions,
unpaved (87%) and unmaintained, and only 31% of developing capacity to plan for, implement, and
the rural population has access to an all season road. maintain the sector
Such limited connectivity has a significant impact on a
variety of sectors, such as trade, agriculture, fisheries, • Establish sustainable funding for maintenance of
health, education, etc. Improvements in its road sector, road assets
both as connectivity for its residents and to facilitate
regional trade, are expected to pay dividends for national C. WHERE SOMALIA STANDS NOW
development, but will take many years and billions of
dollars of investment. The poor quality of Somalia’s road infrastructure is a
major constraint on its population. Somalia’s national
Recent interest from donor countries, both through transport infrastructure has suffered dramatically from a
the HoA Initiative and otherwise, offers an opportunity lack of maintenance and investment during the civil war;
to begin to address some key road corridors, but will the current infrastructure gaps in the transport sector are
require preparatory work to prepare and implement massive. Of the 21,830 km of roads in the country, only 2,860
as well as long term capacity building, institutions, and km are estimated to be paved (13 percent), and most of this
policies to build on and sustain them. paved network is believed to be in poor or very poor condition.
Only 31.2 percent of the rural population has access to an all-
B. SUMMARY KEY ACTIONS season road, compared to 56 percent in neighboring Kenya,
leaving the vast majority of residents without ready access
SHORT TO MEDIUM TERM (see figure 1).⁵² In addition, significant regional variations
exist, with northern regions better connected than those in
• Preparing a prioritized list of projects which are ready the south. The transport sector is vulnerable to the impacts of
for implementation, including identifying potential climate change and natural disasters like flooding, extreme
opportunities for funding civil works, with particular temperatures, and landslides, especially in the semi-desert
attention on national and regional corridors areas and along riverbeds in the South. A resilient transport
sector could, in turn, enhance the resilience of communities
• Operationalizing the institutions (especially the by improving food and water security and providing all-
Somali National Highway Authority) necessary to season access to services like education and health. Overall,
oversee and develop the sector a study by United Nations Office for Project Services,
European Union and the African Development Bank (AfDB)
• Develop a policy platform to coordinate and maximize (2015) estimates the basic needs for rehabilitating transport
synergies between infrastructure investments infrastructure at US$1.8 billion over the next 10 years.
⁵² SDG 9.1.1. Rural Access Index - https://datacatalog.worldbank.org/dataset/rural-access-index-rai
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Figure 12: Share of the Rural Population with Access to an All of infrastructure expresses itself as a severe limitation on
Season Roads the fishing industry, with a low intensity of development
of coastal infrastructure in some regions (e.g., Galmudug
and Hirshabelle).⁵³
Despite its strategic location, Somalia has not been
able to capitalize on its potential to be an economic
integrator within the Horn of Africa (HoA), with trade
and infrastructure services facilitating connectivity to
global markets for its neighbors. With its long coastline,
established seaports, important marine resources, and
orientation of its primary roads as beltways into the interior,
Somalia has a potential competitive advantage to becoming
a gateway to international markets for its landlocked
neighbors. The country is unable to play this role currently,
however, due to many of the same infrastructure and trade
challenges impacting connectivity within the country,
such as failing road infrastructure, limited port capacity,
undeveloped cold-chain infrastructures and seafood value-
Source: World Bank. Rural Access Index.
chains, poor energy supply, weak institutions, absent or
unclear regulations, non-tariff barriers to trade and financial
This poor connectivity expresses itself economically and fiscal challenges both at FGS and FMS levels. In addition,
as well, constraining growth in disconnected the presence of other ports in the wider region (including
regions. Although Somalia is relatively highly urbanized, Mombasa in Kenya and Djibouti) presents some level of
development of road connectivity to the hinterland and competition, highlighting the importance of addressing
borderlands will be vital, as farmers and pastoralists wider bottlenecks and identifying specific trade flows for
living in rural areas are not well connected to services, or which it has a competitive advantage. The link from Ethiopia
domestic and international markets. Due to infrastructure through Somaliland is one important exception, with the
and security challenges, economic centers functioning Jijiga-Hargeisa-Berbera link through the border post at Tog
as “islands”, weakly connected with their neighbors. Wajaale showing the potential benefits of relatively good
The poor quality of the road network drives significant cross-border trade leading to rapid growth.⁵⁴
costs for the more disconnected regions within the
country, with high transport prices (up to US$ 0.50 per The governance of the sector is weak, with nascent
ton kilometer) which are among the highest in Africa. and/or low capacity institutions. The FGS has limited
On land, total transport costs to a large city, a proxy for capacity and resources to provide basic service delivery
estimating access to domestic markets, are found to and bridge the country’s vast transport sector challenges.
be very high in many parts of the country, at US$20 to National institutions are either weak or nascent, and the
US$50 per ton, despite relatively short distances due to FGS has identified several national sectoral agencies to
poor infrastructure, security and associated taxation, be created. Within the roads sector, the Ministry of Public
checkpoints, etc. Nearly all sectors are constrained by Works, Reconstruction and Housing has responsibility
such poor connectivity, both in terms of trade of goods for planning and executing road rehabilitation and
(including livestock) and services. Along the coast, the lack maintenance. It also serves as nominal home for the
⁵³ For more information, see the Somalia Country Economic Memorandum: Towards an Inclusive Jobs Agenda, June 2021, World Bank.
⁵⁴ For more information on cross border flows and the economic geography of the region, see the Horn of Africa Regional Economic Memorandum,
2021, World Bank.
45
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Somali National Highway Authority which is officially (Transport Sector Needs Assessment, 2016) to identify
established but has not been operationalized. The Ministry priorities in the sector. Building on this assessment,
of Transport and Civil Aviation has responsibility for higher several road reconstruction/rehabilitation projects are
level planning and standards setting governing the sector. under preparation or implementation: the Berbera-Tog
Neither of these ministries have the resources, capacity Wajaale corridor and the Burco-Berbera road (supported
or analytical underpinnings in place to strategically plan by the UK’s Foreign, Commonwealth and Development
for or implement the sector’s development. Office and the Abu Dhabi Fund for Development) and
the Berbera-Hargeisa road (also supported by the
Redevelopment of Somalia’s road network is being Abu Dhabi Fund for Development) in Somaliland, the
considered in parallel with the redevelopment of Beledweyne-Galkayo and Garowe-Galkayo roads in
the rest of its infrastructure, presenting tradeoffs Puntland and the Galkayo-Hobyo road in Galmudug
and coordination challenges. Transport does not exist (supported by Deutsche Gesellschaft für Internationale
in a vacuum, and its redevelopment can facilitate that of Zusammenarbeit (GIZ), AfDB and the EU), the Luuq-
other linear infrastructure, such as through shared right Doolow road in Jubbaland, (supported by AfDB and
of way. Its impacts can also be magnified through joint the EU) and the Mogadishu-Afgoye and Mogadishu-
infrastructure development. A recently published study⁵⁵ Jowhar roads in Banadir/Hirshabelle (supported by the
on the potential impact of infrastructure development Qatar Fund for Development).⁵⁶ However, beyond these
on the HoA found that a coordinated expansion in interventions, other road works are not ready, because
access to roads, electricity and internet, as could be of a lack of requisite technical studies and resources on
envisioned through an economic corridor approach can the part of the FGS. The institutional capacities of the
have an important role in driving a structural change ministries are limited, and the governance challenges are
in employment (estimated at a 12 percent increase in many, especially due to absence of clear demarcation of
the share of services employment). Such coordination authorities between the federal government and FMS in
is challenging, however, and fragmentation within the management of the sector.
the infrastructure sector’s governance (both between
line ministries and authorities, and between FGS and D. HOW SOMALIA CAN MAKE PROGRESS
FMS) only compounds this difficultly. Within the FGS,
coordination mechanisms have been established (through Develop a prioritized pipeline of economic corridor
infrastructure sector working groups, for example) but projects ready for donor (or other) financing. While the
the overall scope of the infrastructure development connectivity needs for Somalia are extensive, and nearly
needs, lack of coordinated investment planning, largely the entirety of the road network is in need of rehabilitation,
privately planned and developed power and telecom resources are highly constrained. Recognizing the
sectors, fragmented governance across the FMS, and potential for trade, as well as the relatively urbanized
lack of data make effective coordination difficult. In population, an economic corridor model presents a
addition, prioritization between sectors, and the best use clear cost-effective approach to identify priority high
of scare resources and capacity, introduces the potential impact investments. This recognition is underscored by
for competition between sectors and institutions. the selection of corridors in the Horn of Africa Initiative.
It has been estimated that development of the HoA
Since 2012, the federal government and the FMS, Initiative identified corridors, combined with trade
with the support of development partners have facilitation support, could boost real income in Somalia
begun to identify and act on initial priorities for by 6.3 percent.⁵⁷ The development of such corridors
critical investment in the road sector. The AfDB is expected to support three important objectives:
supported the FGS to conduct a sector evaluation reduction in travel time to port for landlocked regions;
⁵⁵ Matias Herrera Dappe and Mathilde Lebrand. “Infrastructure and Structural Change in the Horn of Africa”. World Bank. 2021.
⁵⁶ These are estimated to cover about 1900 km of roads, with interventions ranging from periodic maintenance to rehabilitation, and with varying
likelihood of eventual delivery.
⁵⁷ Matias Herrera Dappe and Mathilde Lebrand. “Infrastructure and Structural Change in the Horn of Africa”. World Bank. 2021.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
generation of domestic and regional economic activity Application of the ‘dig once’ principle, with
along the corridor (including in marginalized areas); and coordinated deployment of linear infrastructure.⁵⁸
promotion of intra-regional trade. Such integration will Recognizing the high costs for redeveloping the nation’s
be especially important to take advantage of the recently infrastructure, as well as the great needs across all sectors,
agreed African Continental Free Trade Area. In order for aligning investments would reduce cost of deployment
Somalia to take advantage of the HoA Initiative, as well as and hasten the rate at which Somalia is able to bridge
other donor interest in supporting road development, a its vast infrastructure gaps. Aligning infrastructure
prioritized pipeline of road corridors should be agreed and investments across sectors allows for shared right of ways,
prepared (including feasibility, designs, environmental coordinated civil works, and delivery mutually reinforcing
and social safeguards instruments, and other aspects). benefits. With such coordination, however, comes a need
Such a prioritization process will require both technical for wider sector-based network planning that requires
underpinning and political buy in. It is in recognition of sectoral institutional capacity building and an improved
this gap that the FGS is working with the World Bank capacity for integrated infrastructure planning, platforms
to prepare the Somalia-Horn of Africa Infrastructure for inter-sectoral coordination and collaboration, as well
Integration Project (SHIIP) which will help to develop as joint efforts to support the development of an enabling
the first of such. This project, however, will only begin to regulatory framework that cuts across infrastructure
tackle Somalia’s extensive backlog of road reconstruction sectors – e.g. in relation to rights of way, private public
needs, and longer-term attention will be necessary. partnerships, environmental and social safeguards.
Develop the institutional structures to govern the Adopt contract structures and institutional
roads sector. Long term and sustainable improvement arrangements which plan for the medium to long
within the roads sector will require government term maintenance of road assets. A frequent challenge
institutions with the capacity to plan for, manage, and faced by roads authorities in many countries is the lack of
oversee the rehabilitation and maintenance of the primary sufficient funding for road maintenance. Without regular
road network. In addition to technical capacity, such maintenance, roads will degrade long before their design
institutions will need to develop their general capacity for life, leading to poor outcomes for road users and/or high
project management, including environmental and social costs for complete rehabilitation to bring them back to
considerations, financial management, and procurement. working standards. In a country such as Somalia, with an
While legally in place, the Somali National Highway extremely tight national budget and myriad demands across
Authority needs to be operationalized to take much a range of sectors, this is an even more likely eventuality.
of this role, and the overseeing ministries (Ministry of While there are various institutional and contractual ways
Public Works, Reconstruction, and Housing, and Ministry to address this challenge (such as dedicated road funds),
of Transport and Civil Aviation) will require capacity and incorporating a period of maintenance into the initial road
clarity on their functions. Although some activities are construction contract has been shown to be effective in
ongoing (funded by the African Development Bank and many areas. In the very long term, Somalia may be able
the EU) and planned (under the World Bank financed to leverage private investment to meet some of its road
SHIIP) to help the FGS lay the groundwork for such sector demands, but the needed security, institutional
development, creating effective institutions will require capacity, and willingness to pay among road users for such
decades of sustained effort. modalities are likely still decades away.
⁵⁸ Such as roads, electricity transmission lines, and fiber optic cables.
47
ENERGY SECTOR
POLICY NOTE
A. SUMMARY OF KEY MESSAGES enabling institutional and legal framework within the
next 100 days.
Although the country has been on a trajectory
toward political stabilization and reconstruction after • Join the Eastern Africa Power Pool within the next 100
decades of instability, Somalia’s power sector faces days to allow for trade with cheaper energy providers
multiple challenges. The sector is highly fragmented in the medium term.
and inefficient due to the lack of an effective institutional
and legal framework for public and private actors, as • Amend existing licenses of ESPs to improve their
well as the absence of a national network infrastructure. operational, commercial, and environmental
The existing privately owned generation assets of performance standards within the next 1 year.
electricity service providers (ESPs) are mostly isolated,
diesel-powered mini-grids. They operate in an inefficient • Establish a national electricity regulator with
manner, leading to large power sector greenhouse gas appropriate staffing within the next 2 years. Draft
emissions and high technical and commercial losses and enact a grid code within the same timeframe.
(approximately 35 percent in total losses on average).
Operating existing units more efficiently and harnessing • Adopt a least-cost national electrification plan
Somalia’s untapped renewable energy (RE) potential to inform national investments in generation,
could decrease generation costs by up to 25 percent. transmission and distribution within the next 2 years.
Somalia’s daily average solar radiation (6.4 kilo-watt Conduct an assessment of the potential of renewable
hours per square meter per day [kWh/m2/day]) is the resources and a roadmap for their development.
largest of all HoA countries. Indeed, it is one of the highest
globally. Initial wind measurements revealed annual wind • Establish and operationalize a public utility to operate
speed over 8 meters per second (m/s) in most regions the future transmission network within the next 3 years.
(especially along the coast). This indicates that Somalia
has the highest potential for onshore wind power of any Medium- to long-term actions. Additional medium- to
nation on the African continent.⁵⁹ long-term actions to develop the electricity sector include:
(i) analytical work building on existing wind resource
B. SUMMARY KEY ACTIONS studies and implementation of pilot projects; (ii) launching
a reconnaissance study of the geothermal perspective;
• Establish an Energy Sector Working Group to oversee (iii) implementation of a least-cost integrated energy
the re-establishment of the electricity supply industry plan; (iv) development of an electrification strategy;
within one month. (v) the establishment of a national grid; (vi) increasing
renewable energy generation; (vii) increasing electricity
• Enact the Electricity Law as a follow-up to the access; and (viii) reforming private sector participation
Cabinet approval of the Electricity Sector Policy and through instruments, such as a Feed in Tariffs (FiT) policy
the Electricity Bill (in December 2020). Establish the and competitive bidding process.
⁵⁹ AfDB, (“Development of Wind Energy in Africa.” (AfDB, 2013).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
C. WHERE SOMALIA STANDS NOW based generation. The public electricity infrastructure
was destroyed during the conflict, and the associated
Somalia’s electricity sector is one of the most public institutional frameworks are almost completely
underdeveloped in the region. Only a very small defunct at present.
fraction of the Somali population has access to
affordable, safe, reliable, and predictable energy services Key sector performance indicators are below those
because of: (i) low electrification rates,⁶⁰ especially in of most other countries in the Horn of Africa (HoA)⁶¹
rural areas; (ii) the high cost of power; (iii) high technical (table 1). Notably, electricity access is estimated at only
and commercial losses; (iv) dependency on imported 36 percent. The power supply is inadequate to serve a
petroleum products for electricity generation; and (v) growing demand. The estimated peak demand was 400
reliance on biomass resources for cooking. Both public megawatts (MW) in 2021, and demand is forecasted
and private actors have constrained capacity, operating to grow at 9 over the next 5 years.⁶² However, existing
in the absence of appropriate legal and regulatory capacity only stands at 138 MW. The average tariff of
frameworks, which continues to hold back sector U$0.60/kilowatt (kWh) (with peaks of US$1.0/kWh) is one
development. Private sector players (ESPs) supply more of the highest in the world. An inadequate and expensive
than 90 percent of power in urban and peri-urban areas power supply is a significant barrier to socioeconomic
using local, private mini-grids, mainly powered by diesel- recovery and growth.
Table 1. Key Performance Indicators for Somalia’s Energy Sector Compared to HoA countries
Parameter Value Average for HoA
Electricity access (%)1 36 53
Average electricity tariff (US$/kilowatt [kWh])63 0.60 – 1.0 0.22
Average transmission and distribution (T&D) losses (%) 4
25 - 45 23
Share of private sector generation capacity (%) 952 14
Energy mix (%) 64
Thermal: 98; Thermal: 21;
Renewable: 2 Renewable Energy: 79
Emission intensity for electricity and heat generation (tons of carbon dioxide/gigawatt hours [CO2/GWh])
65
592 373
Average solar irradiation (kilo-watt hours per square meter per day [kWh/m2/day])3,66 6.4 5.7
Source: WB staff analysis.
⁶⁰ A reliable baseline for electricity access still needs to be established, planned for FY23 through the ESMAP developed Multi-Tier Framework (MTF).
According to the Tracking Sustainable Development Goal (SDG) 7 Energy Progress Report (2020), electricity access stands at 36 percent.
⁶¹ For the purpose of this note, the HoA countries include members of the Horn of Africa Initiative, launched in 2019, namely: Somalia, Djibouti,
Eritrea, Ethiopia, Kenya, and Sudan.
⁶² Ministry of Energy and Water Resources, Power Master Plan. (Government of Somalia, 2018).
⁶³ World Bank, “Utility Performance and Behavior in Africa Today.: (World Bank, 2021).
⁶⁴ IEA. Country Electricity Statistics. (IEA, 2020).
⁶⁵ IRENA. Country Energy Profiles. (IRENA, 2018).
⁶⁶ E. Dursun. “Solar Energy Potential in Horn of Africa: A Comparative Study Using Matlab/Simulink.” Balkan Journal of Electrical & Computer
Engineering, Vol. 9, No. 3, July 2021. DOI: 10.17694/bajece.974404
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - ENERGY SECTOR POLICY NOTE
The electricity sector is highly fragmented and energy source, gains in effectiveness could contribute
inefficient due to the lack of an effective institutional to a reduction in generation costs of up to 25 percent.
and legal framework. The electricity sector in Somalia Considering the major load centers alone, there are at
is essentially unregulated by the government, which has least 227 HSDG systems currently operating in Somalia,
so far lacked the technical capacity and resources to with a median capacity of 315 kilowatts (kW). These
regulate the ESPs. The Ministries responsible for energy generators are estimated to consume in excess 121,000
are mandated to issue operating licenses. However, given liters of diesel per day. Somaliland alone accounts for
the policy vacuum and lack of a legal and regulatory about 36,000 liters of this daily fuel consumption. With
framework, the ESPs operate as commercial enterprises increasing demand for electricity, it is projected that
on an ad-hoc basis — without clear licensing guidelines diesel consumption could increase to about 694,000
and performance requirements, or common regulations, liters per day in the medium term, that is, if additional
codes, and standards. The ad hoc nature of private service capacity to meet this demand comes from HSDG
provision has led to a highly fragmented electricity sector systems alone. Environmental concerns about carbon
throughout the country. It is also quite expensive, given dioxide (CO2) emissions are further exacerbated by a
the lack of economies of scale and the use of outdated high reliance on biomass.
and poorly engineered systems. This has resulted in the
installed generation capacity not being used efficiently. In There is significant untapped renewable energy
addition, the sector faces other changes, such as extremely resource potential in Somalia. Somalia’s nationally
high electricity losses, unsynchronized generation and determined contribution (NDC) target under the
distribution assets, high tariffs, and safety risks. mitigation component is to reduce greenhouse gas (GHG)
emissions by 30 percent below a business as usual (BaU)
The Somali government sector institutions are in the scenario by 2030. The country has significant potential
formative stage and have no effective institutional for using renewable energy for electricity generation,
and legal framework. In the Federal Government of particularly solar and wind energy. The daily solar
Somalia (FGS), the Ministry of Energy and Water Resources radiation (horizontal) averages 6 kWh/m²/d. The annual
(MoEWR) has the mandate to oversee operations in the wind speed is over 8 m/s in most regions, especially along
electricity sector, whereas in Somaliland, the Ministry of the coast. The country’s hydropower generation potential
Energy and Minerals (MoEM) has the mandate over the of approximately 100 to 150 MW exists in the lower, upper,
energy sector. At the federal level, there are ministries and middle parts of the Shebelle River and Juba River.
responsible for electricity, although most of these are not
yet fully functional. Key sector decisions are made by the The regulatory vacuum inhibits investment flows
MoEWR in the FGS and MoEM in Somaliland. to the sector. Given the creation and implementation
of appropriate regulation, formalizing the energy sector
The existing generation is operated inefficiently, will be an essential precondition for the mobilization
leading to high fuel and environmental costs of significant investment. In the absence of such
of electricity generation. Nearly 100 percent of formalization, the investment will remain seriously
generation is derived from high-speed diesel fuel constrained, and the sectors will continue to underperform.
powered generators (HSDGs). Most of the existing While private sector participation is desirable, the lack of
installed generation capacity is not being used efficiently, appropriate governing laws and regulations introduces
and many of the units are operating below expected substantial uncertainty and inhibits investment. All
and designed performance criteria. This is due to the stakeholders appreciate that the structure must change
lack of sector regulations and limited capacity of the significantly for the sector to provide affordable, reliable,
ESPs to invest in the equipment required to synchronize and widespread electricity supply.
existing HSDG units. It is also coupled with a shortage
of operations and maintenance staff trained in the use Operationalization of the Power Sector Master Plan
of equipment required for synchronous operation. . (PSMP). Somalia has prepared a PSMP that was adopted
By addressing the synchronization of generation units in May 2019. It sets the priorities and sequencing of
and, ideally, supplementing the units with a renewable investments in generation, transmission, and distribution
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
over a period of 20 years, phased into short-, medium-, This would depend on the size of the capital and client
and long-term plans. The plan includes strategies for base. Having started with small, neighborhood-level
expanding rural and urban access to electricity, including generators, some of the ESPs have been growing and
enabling activities and infrastructure investment consolidating their service territories. Though some of
activities covering: (i) the electrification of selected the small ESPs are still in place, they now mainly operate
cities; (ii) the expansion of coverage outside of major as a part of larger entities — especially in the major load
cities; and (ii) the interconnection of separate urban centers. The integration and generation synchronization
grids into a future national grid. The increase in rural of the proposed network operations offers opportunities
and urban access to electricity services is forecasted to for the mergers to invest in new and larger generating
increase electricity demand to between 1,000 to 4,600 units to take advantage of economies of scale, thus
megawatts (MW) by 2037 in the business as usual and permitting the older, smaller, and inefficient units to be
transformational scenarios, respectively. Proposed decommissioned. The establishment of an integrated
activities are detailed in Annex 1. sub-transmission and distribution network infrastructure
would also enable investments in large-scale, offsite
Regional integration for power trade. Somalia is generation. Further, some ESPs have begun hybridization
an active member of the Horn of Africa Initiative and of the existing generation by investing in renewable
a prospective member of the East Africa Power Pool energy (mainly solar and wind), with the main benefit
(EAPP). Interconnection with other HoA countries (for of fuel savings. In addition to increasing their capacity
example, Ethiopia) could allow for a substantive increase to invest in the infrastructure under their ownership, the
in power supply, as well as a decrease in the average merged and larger ESPs would be able to retain a power
generation costs through imports of low-cost, renewable- sector work force that is more skilled, thereby enabling
based electricity. These regional initiatives could also them to operate more efficiently.
leapfrog the establishment of a national transmission
grid through the formation of regional interconnectors Sector institutional and regulatory framework.
for power trade and access expansion. The World Bank After decades of conflict, the institutional, legal and
is preparing the Horn of Africa Regional Integration for regulatory infrastructure needs to be reestablished to
Sustainable Energy Supply Project (HOA-RISES; US$590 support an Electricity Supply Industry (ESI) with clear
million; Board date Q4 of Fiscal Year 2022). The project roles, responsibilities, as well as the capacity for sector
will support the feasibility studies for the establishment management and operations. An enabling environment
of 2 interconnectors between Ethiopia and Somalia, as also needs to be established to attract private investments
well as an increase in energy access (electricity and clean in the sector, including for renewable energy and access
cooking) in the borderlands of the country. expansion. This would also include a multi-year, capacity-
building effort to enhance the sector skills, and business
D. HOW SOMALIA CAN MAKE PROGRESS process reengineering.
Harnesses the strengths of the existing private The government should enact sector laws,
sector. The PSMP has been developed as an initial regulations, and standards (such as the grid code)
framework, which includes a set of actions to reestablish to provide clear mandates, roles, and obligations
and enhance the sector institutions. The proposed sector of the various sector stakeholders. Immediate
undertakings, as outlined in the PSMP, are informed by policy and regulatory actions should be directed to
both ongoing initiatives and several sector assessments enacting the Electricity Bill. In the interim, licensing
and pilot investments. The ongoing, increased number arrangements can be developed for existing providers,
of ESP mergers and acquisitions are key, taking place with the objective of regularizing the status quo. These
initially at the ownership level and gradually at the simplified, fast-track arrangements could also include a
operational levels. Such mergers/acquisitions are first set of obligations regarding the quality of service
often premised on the owner of the smaller company and customer service. The data will allow the authorities
becoming a shareholder of the larger one with a certain to achieve a better understanding of the providers’
(negotiated) level of influence within the company. operations. It will also prove helpful for the next stages
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - ENERGY SECTOR POLICY NOTE
of regulatory development. The ESPs’ ability to operate government institutions to provide an enabling operating
efficiently and to scale up their operations is hampered framework for the private sector.
by several constraints, such as lack of access to funding,
limited institutional capacity and technical skills, and the As part of the Horn of Africa Initiative, Somalia
lack of an enabling legal and regulatory environment. By can leverage the opportunities offered by regional
investing in sector capacity enhancement and network integration to leapfrog the establishment of the
infrastructure, Somalia can leverage the private sector transmission backbone infrastructure, thereby
to reestablish the ESI. Ongoing initiatives to interconnect enabling access to a diverse and low-cost electricity
the distribution network operations of the ESPs, as supply from regional neighbors. Somalia is an active
well as providing utility business development support, member of the Horn of Africa Initiative and a prospective
could enable the ESPs to attract increased commercial member of the EAPP. These regional initiatives could
financing. It would also help to create an enabling support Somalia in infrastructure access expansion
environment for private sector-led investments in grid- through regional schemes for affordable connectivity.
scale generation, as there would be credible downstream This would include rebuilding the physical infrastructure
off-takers. Further, the institutional and regulatory and participating in regional power trade initiatives — all
enhancement would support the reestablishment of which could enable access to an adequate, diverse, and
transparency, trust, effectiveness, and legitimacy in the affordable electricity supply.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
ANNEXES
ANNEX 1. PRIORITY ACTIONS AND INVESTMENTS TO FOSTER ELECTRICITY AVAILABILITY, RELIABILITY AND
INCREASED ACCESS
Action 1. Generation Investments
Short-term Medium- to Long-term
Activities i. Introduce medium-speed, diesel generation and i. Develop large-scale grid connectable to renewable
simple cycle gas turbines. energy generation capacity (mainly wind and solar).
ii. Hybridize existing generation with solar and wind, ii. Expand regional power trade.
including battery storage.
iii. Establish hybrid mini-grids.
Objectives i. Increase the efficiency of existing facilities. i. Increase generation capacity to meet demand.
ii. Meet incremental demand. ii. Reduce the cost of the electricity energy supply.
iii. Reduce the reliance on diesel-based generation. iii. Increase access to electricity services.
iv. Increase access to electricity services. iv. Increase the share of renewable energy in the
v. Increase the share of renewable energy in the existing country’s generation mix.
generation capacity.
Action 2. Transmission and Distribution Investments
Short-term Medium- to Long-term67
Activity i. Distribution network integration and expansion in the i. Establish north and south transmission network
major load centers. backbones.
ii. Establish sub-transmission network to enable ii. Establish regional transmission network
connection of large-scale generation. interconnectors, especially with Ethiopia.
iii. Distribution network reinforcement and loss reduction. iii. Establish a national transmission backbone.
Objectives i. Reduce network duplication. i. Increase electricity supply.
ii. Enable generation synchronization. ii. Reduce the cost of the electricity supply.
iii. Increase network operations efficiency. iii. Increase access to electricity services.
iv. Provide infrastructure to enable large-scale
generation supply.
⁶⁷ Two options inform the proposed transmission network development: (i) interconnection with neighboring Ethiopia, Djibouti, and Kenya; and
(ii) major power plants feeding into the national transmission backbone. About 2,600 kilometers (km) are required to establish the national
transmission backbone, with the first option being a split backbone covering the northern and southern sections.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - ENERGY SECTOR POLICY NOTE
Action 3. Increase Access to Electricity Services
Short-term Medium- to Long-term
i. Construct hybrid mini-grids in green field areas. i. Expand the transmission and distribution network.
ii. Develop mini-grid hybridization in brown field areas. ii. Scale-up mini-grids in green field areas/isolated
iii. Develop stand-alone solar photovoltaics (PV) systems. communities.
iv. Make more efficient use of biomass. iii. Develop stand-alone solar PV systems.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
FINANCIAL SECTOR
POLICY NOTE
A. SUMMARY OF KEY MESSAGES B. SUMMARY KEY ACTIONS
In recent years, the Somali financial sector has been LEGAL AND REGULATORY FRAMEWORK
growing steadily and transforming in response to
market demand and the leveraging of technological • Legislation is pending enactment, such as the
advancements. Widespread use of mobile money is National Payment Systems Law, the Insurance Bill,
supporting financial inclusion. Bank deposits and credit to an updated Financial Institutions Law, and a Digital
the private sector also continue to grow from a low base. ID Bill (aligned with the Digital ID policy).
However, finance for investment purposes and the range
of financial products offered continue to be very limited, • Regulations need to be adopted to support
Furthermore, the modest financial intermediation that implementation of Insurance/Takaful,⁶⁸ the National
exists is largely concentrated in short-term trade finance Payment System Oversight Framework, and the
and relatively large loans. As a result, access to finance for Central Bank Act. Further requirements include
micro, small and medium enterprises — especially those developing a framework for Islamic banking, and
owned/managed by women — is very constrained. A lack of guidance on financial reporting and accounting for
earning opportunities, particularly one remunerated in US supervised financial institutions.
Dollars, further exacerbates financial inclusion challenges
for the most vulnerable population groups. Continued FINANCIAL INTEGRITY AND STABILITY
issues with financial inclusion and financial deepening are
largely attributable to the country’s political and security • The National Risk Assessment (NRA) should
situation. However, a lack of credit and collateral registries be used to develop an AML/CFT Action Plan and to
also contribute to the challenge. Importantly, Somalia also prepare for the Middle East and North Africa Financial
remains isolated from the global financial system. There Action Task Force (MENA-FATF) mutual evaluation in
are gaps in country systems tackling Money Laundering 2024 to prevent criminal abuse of the financial system.
(ML) and the Financing of Terrorism (FT) risks, as well as
unreliable Know Your Customer (KYC) / Customer Due • Strengthen Central Bank of Somalia (CBS)
Diligence (CDD) protocols — including those related to the enforcement of supervisory actions concerning
lack of a trusted means of identification (ID). Furthermore, AML/CFT regulations covering KYC/CDD and
there have been challenges in adopting an adequate legal suspicious transaction reporting.
framework for a Digital ID, which could have numerous
benefits. These include supporting the fight against • Accelerate institutional reforms to strengthen
ML/FT risks, access to correspondent banks, financial the CBS by extending Use of Country Systems (UCS)
inclusion, and cash transfer programs for vulnerable to Federal Member States (FMS), and implement
segments of the population. priorities in the CBS Strategic Plan (2020–2024).
⁶⁸ Takaful is a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - FINANCIAL SECTOR POLICY NOTE
• Market-based financial intermediation and significant progress in strengthening financial supervision
formalization of the financial services market and regulation.
should be encouraged by enhancing prudential
regulations for the banking sector, revising regulations The financial regulatory authorities continue to
concerning capital adequacy, and introducing gradually strengthen the legal, regulatory and
medium-term reserve requirements for banks. supervisory frameworks to improve oversight of the
financial system. The Financial Institutions Law was
FINANCIAL INCLUSION passed in 2012. It laid the foundation of the legal framework
for the financial sector. In 2019, the CBS approved mobile
• Strengthen the capacity of financial institutions money regulations, which will improve oversight of the
(including utilizing the Gargaara facility and other mobile money service providers. Most recently, further
donor-supported programs) to mitigate risk progress has been made in drafting three laws (the Revised
perceptions and increase outreach to underserved Financial Institutions Bill, the National Payment System
segments, including the productive sectors, and Bill and the Insurance Bill), as well as two regulations (
women-owned/-led enterprises. Capital Adequacy Regulation and Liquidity Management
Regulation). In addition, several guidance documents were
• Accelerate the work in establishing credit and drafted (for example, the AML/CFT Guideline for Financial
collateral registries. Institutions, and the AML/CFT Guidance for Commercial
Banks). On the supervisory side, the CBS also commenced
• Restore confidence in the national currency and operationalization of the National Payment System and
its acceptance by financial institutions. Mobile Money oversight activities. As such, it strengthened
licensing, compliance and supervisory activities of
DIGITAL ECOSYSTEM commercial banking and the money transfer business
sectors. Finally, the CBS bolstered its internal controls and
• Strengthen the CBS’s mobile money oversight developed a charter to help audit functions focus on risk-
function and enhance consumer protection. based system audits. It also improved central bank financial
reporting by making progress toward the adoption of the
• Introduce a harmonized government approach International Financial Reporting Standards (IFRS) as its
to data protection and cybersecurity. foundational reporting frame.
C. WHERE SOMALIA STANDS NOW With the launch of the National Payment System
(NPS) in August 2021, the CBS achieved another key
CBS Institutional Strengthening and Financial milestone. The system is expected to be adopted by all
Integrity Challenges commercial banks. It will integrate automatic clearing
house (ACH), real-time gross settlement (RTGS), and
The CBS is making progress in strengthening its instant funds transfer (IFT) functionality within a single
governance and organization. The revival of the CBS in platform. It will also contain links between the CBS and the
2007 contributed significantly to the overall development commercial banks to increase the readiness for scaling
of the Somali financial sector. In 2012, the Central Bank up Somalia’s use of digital payments. The launch of the
Act was passed as part of redefining the structure, role NPS is expected to boost trade and business, as well as to
and responsibility of the CBS. A CBS Strategic Plan (2020- promote financial inclusion by facilitating efficient, low-
2024) supports a transition from the CBS as a fiscal agent cost and fast transactions in a secure and safe manner.
of the Government to a more policy-oriented institution. It is also expected to strengthen overall financial stability
The CBS has drafted new standing committees as part of and the integrity of the system, as well as facilitate its
its policy orientation strategy, which will be implemented integration with the global financial system.
by early 2022. A new Board of Directors was established
in March 2020 to guide future policy priorities. The However, several issues need to be resolved, such
Licensing and Supervision Department has also made as the overreliance on a few transmittal channels,
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
implementation of the legal framework, and the correspondent banking relationships, and only a fraction
development of key central functions of the CBS. of international payments are being channeled through
The CBS is over-reliant on a few transmittal channels the banking sector. Most flows are channeled through
for Official Development Assistance (ODA). The legal the money transfer business (MTB) industry. These
foundations for the CBS needed to underpin secure and arrangements are increasingly becoming regulated,
stable transmittal channels are broadly in line with best but the channels remain vulnerable as highlighted
practices. However, key provisions for modern central by the current COVID-19 crisis. The lack of functional
banking in Somalia remain to be fully operationalized correspondent banking relationships constrains global
(for example, the CBS’s authorized capital share is not connectivity, and poses risks to remittances, as well as
specified; the provisions and authority of the CBS’s Audit official development assistance and investment flows.
Committee are not clearly delineated; and the provisions
on external and internal audit procedures need to be Access to global banking systems remains uncertain
strengthened). Finally, key central functions of the CBS due to risks related to ML/FT, as well as legal and
that are critical to boosting financial sector integrity regulatory weaknesses — leading to de-risking by
remain underdeveloped. Also, there continues to be only foreign financial institutions. This situation is largely
limited managerial and technical skills in policy areas of due to gaps in country systems tackling ML and FT
the CBS. The Somali economy is dollarized, and there risks – including persistent risks of ML/FT – and the
is no local currency legal tender. As a result, the CBS fact that existing KYC/CDD protocols are based on
currently lacks the capacity to implement monetary and manual processes. Such processes are time-consuming,
exchange rate policy. Activation of relevant modules of operationally demanding, expensive, inefficient,
the core banking and Enterprise Resource Planning (ERP) and unreliable. The lack of a robust and verifiable
System remain outstanding (for example, the integration government-recognized identification (ID) represents
of the core banking system with the Federal Government a bottleneck. The difficulties faced by international
of Somalia [FGS] Somalia Financial Management investors and banks when undertaking due diligence
Information System [FMIS] and the new national payment assessments of financial institutions (FIs) is also a factor.
systems platforms). Furthermore, fiduciary challenges Somalia’s security situation and limited freedom of
related to central bank financial reporting (for example, movement in the country hampers basic assessment
financial statements finalized with significant delays, and steps, such as data collection and verification, as well
qualified audit opinions due to unreconciled historical as field visits to FI offices. Such visits are necessary to
balances) continue to be an issue. fully assess the organization’s financial, governance,
and programmatic capability and facilities to mitigate
Independent oversight requires further strengthening. financial crimes.
Gaps remain in the CBS’s supervisory practices and
enforcement of supervisory actions concerning AML/CFT Financial Inclusion and Access to Finance: An
regulations. The CBS and the Financial Reporting Center Ongoing Challenge
(FRC) should ensure that reporting entities understand their
obligations and reporting responsibilities. Specifically, they Despite the ongoing transformation of the financial
should provide clarity regarding the relevant authority for system and the success of mobile money, access to
purposes of supervision of AML/CFT obligation functions a broad range of financial services is still limited for
and the reception of suspicious transaction reports (STRs), a significant proportion of the population. Financial
as there is still confusion about these issues. inclusion in Somalia does not fare badly in comparison
to countries in the region. This is due to the considerable
Isolation of Somalia from the Global Financial System proliferation of mobile money accounts in recent years.
Currently, 13 commercial banks, 13 registered/licensed
The connection of Somalia to the global financial MTBs, and 2 mobile network operators (MNOs) are
system remains tenuous. Banks have few functional licensed by the CBS to provide mobile banking, money
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - FINANCIAL SECTOR POLICY NOTE
transfer and mobile money services, respectively.⁶⁹ bank account, only 4 percent have a bank loan or a line of
Consequently, mobile money has become the dominant credit. Furthermore, the modest financial intermediation
retail payment instrument in the country, with an that does exist is largely concentrated in short-term trade
estimated 73 percent among the adult Somali population finance and relatively large loans, whose weight in the
using mobile money services. This is in line with the total portfolio of FIs increased in 2020 as compared to
proportion of the population that uses mobile money in 2019.⁷² Finally, financial intermediation has diminished
Kenya.⁷⁰ However, the overall penetration rate of banking further in 2021 from its already modest position. This is
services is at 15 percent, and most customers are in urban because of the retrenching of financial institution outreach
centers and richer socioeconomic sectors (a large portion efforts due to an increase in default risk perceptions with
of the population outside Mogadishu does not use banks, the COVID-19 pandemic. In effect, by early 2021, about
and the poor have no access to financial services except 63 percent of firms found access to credit difficult. This
for the receipt of remittances). There is also a significant leaves a large unmet market demand for financing in the
portion of the population that operates solely in the real economy.⁷³
Somali shilling (SOS) economy.⁷¹ As such, it is excluded
from the formal financial system, as FIs and MTBs do Low access to finance is partially a result of Somalia’s
not accept or offer financial services in SOS. The lack of weak credit infrastructure. The FIs in Somalia (for
a robust and inclusive foundational ID system also limits example, banks and micro-finance institutions) lack
financial access. any systematic or comprehensive information-sharing
arrangements. Furthermore, the CBS does not operate
Access to finance in the productive sectors remains a credit registry, and it does not provide any information
a formidable challenge. Bank deposits and credit to back to lenders about the credit market. This obligates
the private sector continue to grow, respectively, from the FIs to evaluate potential clients blindly, and
7.0 percent of gross domestic product (GDP) (US$332 unsurprisingly increases their risk perception of new
million) in 2018 to 13.2 percent of GDP in 2020 (US$659 clients. As such, they continue to rely on alternative risk-
million). It reached US$715 million in June 2021. Then it mitigating mechanisms (for example, requirements for
went from 3.9 percent of GDP (US$184 million) in 2018 immovable collateral and personal guarantees) when
to 4.4 percent of GDP in 2020 (US$219 million), finally making decisions to provide credit. Furthermore, as
reaching US$304 million in June 2021. However, access to movable assets are perceived by the FIs as inherently
finance remains a primary challenge. The 2019 Enterprise risky and insufficient to mitigate credit risks, none offer
Survey for Mogadishu and Bosaso shows that Somali movable asset-based lending in the country. This curtails
businesses rely on internal sources of funding for 92 their ability to expand market share even further, as
percent of their working capital needs (compared to the most micro, small and medium enterprises (MSMEs)
Sub-Saharan African [SSA] average of 78 percent). Only do not possess immovable collateral due to Somalia’s
2 percent of the needs are met by banks (as compared history of conflict and insecurity. The country also
the SSA average of 8 percent). The survey also finds lacks a functional secured credit and collateral registry
that although 94 percent of the firms in Somalia have a regulatory framework.
⁶⁹ The CBS approved three Mobile Money Service (MMS) licenses. Two of these have already been granted, and one is being processed. Also, two
additional mobile money operators approached the Licensing and Supervision Department to submit their MMS license applications.
⁷⁰ According to a survey completed for the 2019 FinAccess Household Survey in Kenya, 79.4 percent of the adult population in Kenya use mobile
money accounts.
⁷¹ The World Bank 2017 mobile money survey shows that mobile money usage is highest in urban areas (83 percent), as well as among the 72 percent
of people in displaced persons camps in urban areas who depend on remittances. Only 55 percent of rural residents use mobile money, and the
gap between income groups is also large (96.9 percent among those earning more than US$500 use mobile money as compared to 59.8 percent
of those earning between US$100 and US$150).
⁷² Somalia Economic Update. (World Bank Group, June 2020).
⁷³ COVID-19 Enterprise Survey conducted by World Bank Group (WBG) and United Nations Industrial Development Organization (UNIDO), 2021.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Digital Ecosystem for Financial Development: Gaps overreliance on a few transmittal channels for ODA
and Remaining Agenda should be mitigated by extending the UCS to the
FMS.⁷⁶ Second, as the operationalization of the CBS
Although there have been improvements to the Act is dependent on the completion of other high-level
legal, institutional, and technical foundations for reforms outlined in the CBS Strategic Plan 2020–2024
a digital ID system,⁷⁴ important gaps remain in (for example, implementation of the CBS re-organization
Somalia’s digital service capabilities. A bill to establish plan in line with International Monetary Fund [IMF]
the ID Authority was passed in Parliament and signed by technical assistance [TA] recommendations), such
the President in December 2020. Nevertheless, this only reforms should be prioritized. Finally, the CBS needs
partially addresses the legal requirements of a digital ID to urgently strengthen key central banking functions
system. There have been delays in the rollout of the digital that are critical to boosting financial sector integrity by
ID system. Several digital systems have been introduced developing and maintaining a good working knowledge
by the Government (for example, a handful of back-end of the FIs being supervised in selected areas, particularly
systems have been/are being introduced to support core corporate governance, corporate structure, and risk
public sector functions critical to basic service delivery). management. It will also be important to build trust and
However, Somalia’s digital capabilities remain nascent public confidence in central bank supervisory policies
and vulnerable in the absence of an enabling framework through financial and nonfinancial risk disclosures in
for digital service delivery, data management, and data supervised FIs. Financial stability and integrity can be
safeguards. Somalia also lacks a proper foundational improved through the continued upgrading of prudential
digital infrastructure, as well as shared platforms to regulations closer to international standards. This will
accelerate readiness, delivery, security, and the resilience support the enhancement of bank supervision (including
of basic digital government services. Specifically, few of that of the MTBs) and help address institutional/systemic
the recently introduced digital systems leverage shared vulnerabilities early on. Regulators should encourage
infrastructure and platforms. These would allow systems financial institutions to strengthen monitoring and public
to be readily integrated or scaled to enable more effective reporting of key financial soundness indicators, which can
delivery of digital services to individuals and businesses. enhance confidence in the market, foster competition,
The introduction of foundational infrastructure and and contribute to the efficient financial intermediation and
platforms enabling the delivery of digital ID services improved access to financial services. The CBS also needs
also faces political economy challenges.⁷⁵ As such, it will to strengthen the enforcement of supervisory actions
require further strengthening of technical readiness and concerning AML/CFT regulations covering KYC/CDD⁷⁷ and
capabilities, as well as consensus building across the suspicious transaction reporting. This will help to guard
Federal Member States (FMS), to ensure broad-based against reputational and financial integrity risks in Somalia.
access to ID services across the country. In this sense, using the NRA to develop an AML/CFT action
plan should be a priority, as it will help prepare for the MENA-
D. HOW SOMALIA CAN MAKE PROGRESS FATF mutual evaluation in 2024.The evaluation will entail
conducting an in-depth analysis of the implementation and
Central Bank of Somalia: Institutional Strengthening effectiveness of measures to combat money laundering and
and Financial Integrity Challenges terrorist financing.
Several issues need to be resolved to improve To strengthen supervisory actions concerning
Somalia’s financial sector integrity. First, an AML/CFT, the CBS will also need to work alongside
⁷⁴ This was supported by the World Bank SCALED-UP Project (P168115).
⁷⁵ Introducing the foundational infrastructure and platforms for the Digital ID System requires countrywide support across federal and regional
leadership. In the Somali context, buy-in from different government stakeholders and the FMS will be particularly important in securing acceptance
of the new IDs countrywide and in enabling the Digital ID Program to achieve its registration targets.
⁷⁶ Channeling of ODA through the CBS as a fiscal agent is expected to further contribute to federal state formation by extending the UCS to the
FMS level.
⁷⁷ Developing a trusted and secure means of unique identification will strengthen the KYC protocols.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - FINANCIAL SECTOR POLICY NOTE
FIs to begin use of a digital Customer Verification with the opportunity to be assessed by an independent
System (CVS) to enable the use of electronic (e)-KYC third-party against criteria informed by international
protocols. The CVS will need to be designed to promote standards (for example, Financial Action Task Force
visibility and enrich the integrity of customer information [FATF] recommendations, Wolfsberg principles) and
across all FIs regulated by the CBS. As such, it will increase requirements of the international financial community.
the efficiency and robustness of operating KYC/CDD The initiative will also provide targeted TA to these banks
protocols, and establish a level of coherence that meets to reach the required benchmarks. Assessment findings
global standards for preventing and combating ML/FT would be made available to interested international FIs
risks. The CVS would also need to be interoperable with and prospective investors based on confidentiality. The
the foundational digital ID system, as the latter is expected international FIs and investors could then be informed by
to serve as an authoritative source for the verification of the assessments in any decisions concerning the initiation
customer identities. Therefore, the rollout of Somalia’s of a Correspondent Banking Relationship (CBR) or in
digital ID needs to be implemented in parallel. When undertaking an investment.
implemented, this initiative would provide a pathway for
unbanked Somalis to integrate into the banking system Financial Inclusion and Access to Finance
by using the CVS-enabled e-KYC protocols.
Access to finance for Somalia’s productive sectors can
Isolation of Somalia from the Global Financial System be improved through mitigating FI risk perceptions,
increasing liquidity for underfinanced sectors (for
A feasible pathway for the Somali financial system example, MSMEs), and developing the business
to reintegrate into the global banking system acumen of FIs and MSMEs. Several donor-supported
needs to be established. The screening of customer financial intermediation and business development
KYC/CDD information is an important element for services (BDS) projects are already in place. They should
both fostering business development in the Somali continue to be implemented to make progress in this area
financial sector, as well as integrating it into the global (existing programs include those funded by the European
financial system. Mitigating the difficulties faced by the Union, Norfund, Swedish International Development
international financial community when performing Cooperation Agency [SIDA], UNIDO, and the World
due diligence assessments of FIs in Somalia can also Bank).⁷⁸ For instance, the new apex development
help to strengthen the connectivity of the country’s finance institution, Gargaara, incorporated in Somalia
financial sector. To achieve this, local FIs need to increase in 2019 with the support of the World Bank, is aimed at
transparency and improve the integrity of their AML/ mitigating liquidity shortages in the country. It works
CFT systems. Efforts are already underway in this closely with Somali FIs and international development
regard, including through donor-supported projects. financial institutions (DFIs) to expand commercial access
For example, the World Bank and the United Kingdom’s to finance by providing public financial institutions (PFIs)
Foreign, Commonwealth and Development Office with funds to on-lend to vulnerable but viable MSMEs
(FCDO) are already supporting the preparation of the in targeted productive sectors — with a special focus on
Financial System Initiative. This Initiative aims to provide women-owned and women-managed firms. There are
financial institutions willing to invest in that endeavor further efficiency gains to be had in leveraging different
⁷⁸ UNIDO has established a network of Enterprise Development Units (EDUs) that provide training to MSMEs, business counseling, investment
promotion and international business matchmaking, the identification of potential projects for credit, and linkages of MSMEs to FIs. It also created
a financing facility operated by the IBS Bank. Norfund started a permanent capital vehicle with US$26 million in assets under management
(AUM) structured with blended finance elements (for example, first loss, subordinated first loss) aimed at large small and medium enterprises
(SMEs). SIDA is in the process of founding a US$5 million Guarantee Fund operationalized through 4 local FIs. The European Union signed an
agreement with the Africa Enterprise Challenge Fund (AECF) for the implementation of a Euro 4.5 million program to provide access to finance for
microenterprises owned by women, youth and producers. Finally, the World Bank Group, supported the creation of Gargaara, an apex development
finance institution. It will provide liquidity for MSMEs, as well as incentivize lending to that type of firm through credit guarantees and TA to FIs. It
will also build MSME capacity through BDS.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
development partner initiatives through Gargaara, which Financial inclusion can also be increased by
will function as a sustainable Somali apex entity run on restoring confidence in Somalia’s national
private sector principles. currency and increasing its acceptance by FIs.
Replacing counterfeit SOS in circulation with a new
Strengthening credit infrastructure will also legitimate national currency in Somalia would be
be essential to improving access to finance in helpful in making progress in this sense. Therefore, it
Somalia.⁷⁹ The most immediate improvement to has been identified as a priority reform area by the
credit infrastructure necessary to expand access to CBS and other Somali stakeholders. Discussions with
finance concerns the availability of a comprehensive FIs indicate their interest and readiness to offer SOS
information-sharing system that can support lenders in accounts once the new legal tender is introduced
assessing, underwriting, and managing risks associated (they already offer shilling-denominated accounts
with providing credit products. To this end, the following in Somaliland). In this context, the replacement
actions need to be taken: (i) a bespoke credit information- of counterfeit currency in circulation and the
sharing legislation must be developed to clearly define reintroduction of Somalia’s national currency will
the roles and responsibilities of different stakeholders, improve financial inclusion for all Somalis, but
protect consumer rights, and assign penalties for non- especially for women who currently are more severely
compliance; (ii) a privately established and operated impacted by a lack of access to US dollars. Removing
off-shore⁸⁰ and/or hub and spoke credit bureau⁸¹ needs counterfeit currency from circulation will reduce the
to be established; and (iii) capacity building should be uncertainty of transacting with SOS, which is one of
undertaken to raise awareness and build stakeholder buy- the commonly cited concerns of Somali households,
in. Enhancements to the secured transactions framework traders, and exchange dealers. It is also a factor
in Somalia are also necessary to expand access to finance preventing poor Somalis from accumulating wealth.
in the country, although it is less of a priority for financial A such, the CBS is preparing a Currency Exchange
sector stakeholders in the short term. First, a new law to Project with support from the World Bank. Given the
reform the secured transaction landscape in the country latest developments in the political dialogue between
needs to be drafted to extend the scope (for example, it the FGS and the FMS, a revision of the Memorandum
should encompass possessory pledges, financial leases, of Understanding (MOU) would be necessary to
and assignments of receivables, as well as a range of secure stronger commitments from the FMS in
movable assets) and streamline processes (for example, support of this endeavor.
excluding excessive requirements such as notarization,
allowing electronic security agreements, and making Digital Ecosystem for Financial Development
available expeditious, out-of-court enforcement against
collaterals) of such transactions. Second, an electronic Somalia’s digital service capability could be bolstered
and notice-based collateral registry should be instituted by accelerating the launch of the Digital ID System.
and rules setting forth the operational aspects of the Providing a biometrically supported unique ID number to
registry will need to be drafted. Third, amendments to the the Somali population will serve as a platform for financial
insolvency law must be made to ensure coordination with access, digital payments, and the delivery of government,
the new secured transactions law. humanitarian, and private sector services. This requires
⁷⁹ Recommendations to strengthen credit infrastructure in Somalia are based on the “Assessment of the Credit Markets, Credit Information Sharing
System and Secured Transactions”, carried out by the International Finance Corporation (IFC) in 2021 at the request of the Government of Somalia.
⁸⁰ It is suggested that the Somali private sector develop and operate the credit bureau because it is unlikely that the FGS will develop one in the short
term. This is due to CBS’s capacity constraints and competing priorities.
⁸¹ Given Somalia’s security constraints, the economics of setting up a credit bureau to serve each of the member states is not justified. In this context,
using a hub and spoke approach can achieve economies of scale and quicker implementation without compromising on the quality of the Credit
Bureau. Specifically, under this approach, the hub could be based in Mogadishu or outside the country. It could host the databases, systems,
customer support, and second and third tier help desk and core information technology (IT) services. The spokes would serve the different member
states, perform sales and data collection, support data providers/users/customers, and provide first level help desk services.
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - FINANCIAL SECTOR POLICY NOTE
prioritizing the creation of a robust enabling environment environment for secure data management with direct
and institutional framework for a digital ID system. It is implications for the ID system.
necessary to establish legislation for many important
features of the ID system covered in the Digital ID Policy. A harmonized government approach to data
This would include: the purpose, technical architecture, protection and cybersecurity should also be
and data to be collected by the ID system; criteria and introduced to enable digital services in Somalia.
process for enrollment and issuance of ID credentials; the Support to the FGS in developing shared strategic,
acceptance/use of ID credentials issued; and grievance governance, legal, and institutional frameworks and
redress mechanisms. There is also a need for enhanced action plans aimed at safely expanding e-services
coordination across different FGS entities concerning is a priority (for example, in relation to the National
matters related to identification. Regular communications Cybersecurity Strategy, the National Guidelines for the
between key government entities remains crucial given Protection of Critical National Information Infrastructure,
the cross-cutting nature of identification, as well as and the National Institutional and Governance Structure
the ongoing work to strengthen the broader enabling for Cybersecurity).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
INFORMATION AND COMMUNICATIONS
TECHNOLOGIES SECTOR POLICY NOTE
A. SUMMARY OF KEY MESSAGES • Conclude licensing of all telecommunications
operators [NCA].
The information and communication technologies
(ICT) sector plays a critical role in the Somali economy, • Finalize implementation of the interconnection
offering mobile communications and mobile money regulation [NCA].
services to an increasing share of the population,
thereby boosting economic growth, job creation • Adopt and implement spectrum regulation with a
and service delivery. However, further action is needed balanced fee structure [NCA; Ministry of Finance [MoF].
to accelerate sector development and promote greater
digital inclusion. Somalia is benefiting from growing • Ensure adequate budget allocations for the NCA to
access to international capacity (first mile). However, ensure sustainability [MoF].
the weak backbone network (middle-mile) prevents the
effective transmission of capacity to all sub-regions. Create an enabling environment for data-driven
Further, 3G and 4G mobile access network coverage e-services and innovation:
(last mile) is limited to major urban areas. This impacts • Enact laws to enable and promote trust in digital
network access, the quality of services and affordability transactions and services including: e-transactions,
for consumers. Broadband adoption is estimated at data protection and privacy, cybersecurity and
between 5 and 10 percent. Currently, there are no cybercrime [Ministry of Communications and
government policies to support broadband planning and Technology [MoCT]; Cabinet/Parliament]
universal access. An initial legal framework has been
adopted to establish the regulatory authority, the National MEDIUM-TERM ACTIONS:
Communications Agency (NCA). However, there are
gaps in applying the law, and corresponding regulations Establish regulatory fundamentals to boost
need to be developed. Other aspects of the digital competition, quality of services and investment:
economy require development, including e-transactions, • Enforce operator reporting to the NCA and improve
and data protection and cybersecurity. Furthermore, the collection of sectoral data [NCA].
integrating Somalia with the regional market could boost
the domestic market through interconnections and • Introduce regulations to reduce the cost of
interoperability of national backbone networks across the infrastructure deployment and support infrastructure
Horn of Africa region. sharing, roaming, and numbering regulations [NCA].
B. SUMMARY KEY ACTIONS • Publish guidelines to reduce regulatory fees concerning
the use of spectrum. Promote access to digital
SHORT- TO MEDIUM-TERM ACTIONS: infrastructure [MoCT; NCA; Ministry of Public Works].
Establish regulatory fundamentals to boost • Introduce universal service policies and work on
competition, quality of services and investment: broadband planning. [MoCT; NCA].
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - INFORMATION AND COMMUNICATIONS TECHNOLOGIES SECTOR POLICY NOTE
Formulate policies and introduce vehicles for network creating one of the most active mobile money markets in
expansion and universal access: Africa. According to a 2017 survey commissioned by the
• Facilitate an internet exchange point in Mogadishu World Bank, 73 percent of Somalis over the age of 16 use
to promote peer linkages between internet service mobile money services.⁸² In the Somali context, the main
providers (ISPs) in a neutral carrier facility [NCA]. telecommunications and financial service providers are
closely linked⁸³ (see financial sector policy note). The sector
• Extend wholesale roaming services to smaller is characterized by dominant sub-regional operators.
networks [NCA]. Telecommunications services evolved in a political and
regulatory vacuum, making ex-post regulation of large
• Consider public-private partnerships to launch the market operators in the current context a challenging
national backbone network [MoCT; NCA]. exercise. The market is currently comprised of five major
operators (Golis, Hormud, NationLink, Somtel, and
Create an enabling environment for data-driven Telesom), as well as several smaller service providers.
e-services and innovation: However, interconnection between the networks remains
• Invest in shared frameworks, platforms and digital based on only a handful of private bilateral agreements.⁸⁴
public goods that enable government (and the
private sector) to scale e-service provision (for There are low levels of broadband adoption and gaps
example, shared data hosting) [MoCT]. in the value chain – particularly in the middle and last
mile of the broadband value chain.
• Support regional integration of digital markets
through the harmonizing of national and regional Somalia still has a long way to go to ensure universal
telecommunications and data frameworks access to broadband. Somalia boasts some of the highest
[MoCT; NCA]. levels of mobile money and mobile communications
adoption in the region. However, it has one of the lowest
C. WHERE SOMALIA STANDS NOW levels of broadband adoption (approximately 5 to 10
percent), which means that the use of mobile money is
Somalia’s vibrant telecommunications sector plays a likely limited to low value-added services. Mobile access
critical role in the economy, but it has emerged in a networks currently provide the main means for end-
regulatory vacuum. users to connect, and the fixed broadband market⁸⁵ is
nascent (with less than 1 percent penetration).⁸⁶ Although
The telecommunications sector plays a critical role in official data is limited, industry consultations suggest
the Somali economy. Following the collapse of the Siad- that 3G and 4G mobile broadband coverage is limited
Barre regime, telecommunications operators seized new to urban areas only: for example, 4G coverage is said to
market opportunities to leverage the growth potential of exist in Mogadishu and Hargeisa, and may have been
the digital economy. Access to mobile communications extended to other major cities, including Baidoa, Bosaso,
and mobile money services have rapidly expanded, Galkayo, Garowe, and Kismayo. As for 3G, it appears to
⁸² World Bank, “Mobile Money Ecosystem and Household Survey (2nd wave).” Financed by the ICT Sector Support Project - Phase 2). However, most
SIM cards remain unregistered in the absence of a reliable foundational ID system, thus creating financial integrity issues. (World Bank, 2018).
⁸³ Examples include Hormuud, founded in 2002, linked to Salaam Bank. It offers Taaj international remittances and EVC mobile money. Golis, also
founded in around 2002, offers Sahal mobile money. Telesom, similarly founded in around 2002, offers Zaad mobile money. Somtel, founded
in 2009 by international money transfer operator Dahabshiil, offers eDahab mobile money. Amtel, founded by Amal Bank, offers Amal Express
remittances and also myCash mobile money. Hormuud, Golis and Telesom are part of the same conglomerate.
⁸⁴ Hormuud, Telesom and Golis have interconnection agreements and are part of the same conglomerate of network providers.
⁸⁵ Fixed-line internet service providers include Hormuud, Golis and Telesom, SOON (part of Dalkom), Somalia Wireless, Somcast, and Somcable.
Fixed-wireless alternatives are provided by Sahal Telecom.
⁸⁶ The source is the authors’ analysis of: World Bank. International Economics Department, Development Data Group. (2019). World Development
Indicators. (World Bank, 2019).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
have reached some smaller towns. Somalia performs does the Mogadishu metropolitan area and parts of
well in terms of affordability,⁸⁷ with some of the lowest Puntland (Bosaso, Garowe and Galkayo) managed by
retail prices in the region. There is high access to devices Golis.⁹¹ However, other parts of the country continue
(approximately 90 percent of adults own a phone),⁸⁸ but to rely predominately on microwave radio technology
weak network coverage. Also, service quality is a binding for distribution of capacity and/or satellite links, which
constraint to expanding access. Expanded access to reduces capacity provided. This limits service quality
broadband would present important opportunities for availability in sub-regions and also increases costs.
economic growth, innovation, and job creation. Despite the presence of the Somali Internet Exchange
Point (SoIXP), there is also limited use of this facility that
Somalia is benefiting from growing access to could help reduce latency and cost for operators.⁹²
international capacity (first mile), which has allowed
for generally low prices in the mobile data market. The foundational legal framework and nascent
Somalia is currently connected via a large number of regulatory function for ICT is in place
submarine and cross-border terrestrial cables.⁸⁹ Somalia
must now take advantage of this improved connectivity The adoption of the Communications Law and the
to develop a backbone network that can effectively reach creation of the National Communication Authority
consumers throughout the country. The growing access (NCA) have paved the way for formalizing and
to international capacity has also helped to bring down regulating the sector. After years of parliamentary
prices for wholesale capacity. In addition, it could allow deliberation, a landmark Communications Law was
Somalia to play a key role in the regional connectivity adopted in 2017. It created the legal basis for regulating
market, thereby transmitting capacity to its landlocked the telecommunications industry. In 2018, an independent
neighbours such as Ethiopia. industry regulator was created, the NCA. In its first years
of operation, the NCA has focused on licensing operators.
The lack of a national backbone network (middle- A Unified Licensing Framework (ULF) was approved in
mile) presents the most important bottleneck to 2020, and the NCA was due to complete licensing for all
the development of a domestic broadband market categories under this framework by August 31, 2021 —
and integration of regional connectivity markets. though some still appear to be pending.⁹³ This has also
The absence of a robust backbone network prevents paved the way for licensing of mobile money by the
the distribution of international capacity across Somalia Central Bank (see Financial Sector Policy Note).
through long distance fibre — subsequently creating a
fragmented market, with uneven network coverage and The NCA has sought to introduce frameworks for the
quality, limited redundancy, and market competition foundational regulatory issues, but a majority have yet
(where dominant regional players have emerged in to be fully implemented. Key areas of focus have included:
the wholesale market segment).⁹⁰ The Somaliland (i) effective spectrum management, which is a scarce public
region has a relatively well-developed terrestrial fiber resource that needs to be well-managed to promote fair
optic backbone network (managed by Somcable), as competition and better service quality (free from frequency
⁸⁷ For instance, 2GB of data from Hormuud costs US$ 1 on a Friday , and Golis offers a daily bundle of 2GB for US$ 1. Somtel offers daily and weekly
data bundles as well, costing US$ 2 for 1.2GB. These prices are among the lowest in Africa. See: Research ICT Africa, (Q2 2020).
⁸⁸ World Bank, “Mobile Money Ecosystem and Household Survey.” (Financed by the ICT Sector Support Project – Phase 2) (World Bank, 2018).
⁸⁹ These include: (i) the EASSy submarine cable landing in Mogadishu; (ii) the Gulf to Africa (G2A) submarine cable landing in Bosaso (Puntland); (iii) the
Djibouti-Africa Regional Express (DARE) cable that lands in both Mogadishu and Bosaso (and thus helps to connect the EASSy and G2A cables); (iv)
the terrestrial Somcable fiberoptic link between Somaliland and Djibouti; and (v) Hormuud’s terrestrial microwave links to Kenya’s network at Liboi and
Mandera. More international submarine cables are on the way, including the Pakistan and East Africa Connecting Europe (PEACE) cable that will be
landing in Mogadishu, Bosaso, Kismayo and Hobyo starting in 2022; the 2Africa cable due to land in Mogadishu in 2023; and the Africa-1 cable.
⁹⁰ There is only one independent, long-distance operator in each region, except Somaliland (where Somcable and Telesom both have networks).
⁹¹ “Broadband Backbones in Somalia Needs, Resources, Plans and Options”, (Kalba International, Inc., dated December 11, 2019).
⁹² See: https://wiki.soixp.so/index.php/Main_Page. This may be due to the fact that it is not located in a carrier-neutral facility.
⁹³ https://nca.gov.so/public-notices/; https://nca.gov.so/licensed-operators/
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - INFORMATION AND COMMUNICATIONS TECHNOLOGIES SECTOR POLICY NOTE
interference), as well as a contribution to public revenues; including setting appropriate fees that balance policy
and (ii) interconnection, which would also be instrumental in priorities for mobilizing revenues with needs for ensuring
boosting competition and lowering barriers to market entry. low barriers to market entry. In the medium-term, the
This would be achieved by allowing different operators to NCA will also need to increase its capacity to collect
exchange traffic at low or zero cost. The NCA has published market data and enforce reporting requirements that
draft regulations on spectrum management. It has also allow for the formulation of universal service plans — and
adopted regulations and guidelines for interconnection. for the NCA to enforce coverage obligations. There is also
However, full implementation by all licenced operators is scope for the NCA to work on frameworks that reduce the
still pending, including formalization of the sister-companies cost of network deployment in underserved rural areas
already interconnected. (such as infrastructure sharing,⁹⁴ national roaming)⁹⁵ and
support competition (review of wholesale pricing).⁹⁶ In
Limited expansion of data-driven services the longer term, it will be necessary to work on the further
development of the numbering regulation,⁹⁷ including
Meanwhile, other facets of Somalia’s digital number portability.⁹⁸ Meanwhile, there is also a need to
economy remain nascent. The COVID-19 pandemic continue to boost the NCA’s regulatory maturity, ensuring
has demonstrated the need to extend e-services across its financial sustainability by allocating the agency with
the public and private sectors to support business an adequate annual budget. While continuing to actively
continuity, as well as to expand the government’s consult industry players, the NCA also needs to be
capacity to deliver efficient and remote services using protected from undue industry influence.⁹⁹ As the first
digital channels. However, in addition to lingering industry operator in Somalia, the success of the NCA sets
connectivity gaps, many of the foundational frameworks an important precedent for regulatory governance.
and building blocks are missing.
Formulate policies and introduce vehicles for network
D. HOW SOMALIA CAN MAKE PROGRESS expansion and universal access
Work on regulatory fundamentals that can boost Somalia needs to develop a broadband plan and
competition, the quality of services, and investment enabling frameworks for infrastructure investment.
This should build on the existing ICT Policy and Strategy
The NCA needs to swiftly conclude implementation (adopted in 2019), whereby the government articulated
of regulatory frameworks and turn its attention to a 5-year vision. This vision was grounded in achieving
other key areas to improve competition and universal universal, affordable, and quality ICT services, provided
access. In the short term, this means pushing operators through open, competitive, and well-managed markets.The
to implement/formalize interconnection agreements government can also help to reduce deployment costs by
based on adopted regulations. It will also be necessary promoting the parallel deployment of linear infrastructure.
to finalize work on spectrum management and licencing, It can also use shared infrastructure as part of public works
⁹⁴ There is no physical site sharing between operators. Site sharing may not be necessary in densely populated areas where there is substantial
demand. For instance, it is estimated that there are 700 high sites used by licensees in Mogadishu alone, where site sharing may not be necessary.
At the same time, it is also valuable to have infrastructure duplication for network redundancy purposes, in case one network fails.
⁹⁵ Roaming services need to be considered for smaller entrants. Hormuud, Golis and Telesom currently offer roaming services with one another’s
networks. However, Somtel, Amtel, Somlink and Nationlink are currently not able to access roaming services. There is a balance to be struck
between encouraging the latter firms to launch their own networks, while also permitting their customers to benefit from full coverage via roaming
while networks are being built.
⁹⁶ For example, in 2015 between US$240 and US$400 per Mb/s per month were paid by different clients for similar volumes.
⁹⁷ For instance, the numbering regulation rule that prohibits the issuance of numbers to non-CISP licensees may limit the growth of service-based,
fixed-line providers. This aspect of the numbering regulation needs to be reconsidered.
⁹⁸ This is an important intervention to support new entrants in Somalia, since consumers are reluctant to switch networks if this means losing their
mobile number.
⁹⁹ This could be achieved through more robust scrutiny of potential conflict of interest that adversely impacts its independence.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
(for example, through ‘dig once’ policies; by offering space Somalia national cyber emergency response team (SOM-
for additional ducts in new pipeline building or during CERT),¹⁰² as well as the establishment of an independent
road construction; and better right-of-way legislation).¹⁰⁰ data protection office. Somalia also needs to invest in the
Broadband planning could help to identify where related shared building blocks for scaling public e-services, which
opportunities could be leveraged. In certain cases, where would be informed by a new e-government strategy. This
policy and regulatory reform are insufficient to overcome may provide the necessary incentives to build trust and
weak investment incentives, the government could also encourage the adoption of digital services to unlock the
contemplate the use of public-private partnerships (PPPs) potential of the digital economy.
to promote open access infrastructure — provided that the
PPP framework is strengthened. Support regional integration of digital markets
Create an enabling environment for data-driven Integrating Somalia with the wider regional
e-services and innovation connectivity market in the Horn of Africa could also
help to accelerate the development of the domestic
Somalia needs to introduce foundational policy, legal connectivity market and create significant economic
and operational frameworks and public infrastructure opportunities. At a wholesale level, this could be achieved
that promote the safe scaling of digital services. This by ensuring interconnections and interoperability of the
includes urgently addressing the existing legal vacuum national backbone networks across the region (physical
regarding frameworks for e-transactions, data protection, and regulatory), thus facilitating the construction of new
cybersecurity, and cybercrime. The Federal Government cross-border networks and the streamlining of licensing
of Somalia (FGS) also needs to develop shared policy and requirements or obligations for regional players. At a retail
strategic, governance and institutional frameworks to level, this could mean implementing and extending existing
support the operationalization of cybersecurity¹⁰¹ and data regional roaming initiatives, such as the One Network Area
protection. This would include the strengthening of the (ONA) to Somalia, which also covers data.¹⁰³
¹⁰⁰ For example, national road construction could be used as a means for reducing the costs of installing long-distance fibre networks, but competition
would still need to be encouraged along these routes. See the Albany report prepared for the World Bank, cited above.
¹⁰¹ Starting with the formulation of a National Cybersecurity Strategy; National Guidelines for the Protection of Critical National Information
Infrastructure; and a National Institutional and Governance Structure for Cybersecurity.
¹⁰² This is an initiative launched at the level of the NCA, in close collaboration with the Ministry.
¹⁰³ A Single Digital Market for East Africa: Presenting Vision, Strategic Framework, Implementation Roadmap, and Impact Assessment (English).
(Washington, D.C.: World Bank Group, 2019).
67
BUSINESS ENVIRONMENT
POLICY NOTE
adequate consultation to harmonize processes and
A. SUMMARY OF KEY MESSAGES
clarify mandates between the FGS and the FMS.
Somalia has a vibrant business community, but
• Develop and implement a unified national business
the growth and development of the private sector
registration regime to enable a single unique
is constrained by multiple obstacles. Widespread
business number nationwide across FGS and FMS.
insecurity, inadequate regulatory frameworks, and a
lack of correspondent banking relations are some of the • Implement a business registry data sharing arrangement
factors that are constraining the growth of the private to enable greater use of business data and interoperability
sector. The types of challenges that firms face varies by the following data security provisions.
size of firm. The most common self-reported challenges
include access to land and to finance. While mobile • Share business registry data with financial institutions to
baking is widespread, Somalia’s isolation from the global support know-your-customer requirements, alongside
financial system and the lack of a financial intermediation other measures to support the Anti-Money Laundering /
means that firms find it challenging to access finance Combatting Financing of Terrorism (AML/CFT) agenda.
for investment purposes. Firms which have established
have adapted to a low regulatory environment and with • Provide access to publicly available business data to
the larger firms emerging with dominant positions. Thus, enhance business-to-business cooperation.
applying suitable regulatory frameworks ex-post can
be challenging. Somalia’s diaspora offers an important • Enact the pending Investment Promotion Agency Law
source of private investment for the country, including and the Investor and Investment Protection laws as well
in sectors such as construction, hospitality, agriculture, as ratify international conventions that protect investors
and fisheries. However, the enabling environment (New York Convention 1958) to provide a more enabling
for investment needs to be strengthened to provide framework for private investment in Somalia.
improved predictability to the domestic private sector
and to new entrants seeking to invest. • Develop a comprehensive public-private-partnership
regulatory framework to leverage private
B. SUMMARY KEY ACTIONS investments and risk sharing.
SHORT-TO-MEDIUM TERM: MEDIUM-TO-LONG TERM:
• Expanding gains to the FMS: • Update the Company Act 2019 to support other
• Roll-out the online business registration and licensing aspects important for the business community.
system in the Federal Member States (FMS).
• Establish legal framework for registration of other
• Support implementation of the Company Act firm categories.
across the FGS and FMS.
• Undertake further diagnostic to support new private
• Adopt the Business Licensing Law following sector development.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
C. WHERE SOMALIA STANDS NOW The Ministry of Commerce and Industry has also
taken steps to launch an online Business Registration
The Somali private sector encounters many and Licensing System. The Business Registration and
obstacles to doing business. In terms of the broader Licensing System (https://ebusiness.gov.so/) facilitates
country context, there are challenges related to insecurity business incorporation and licensing online. The system
and instability, which includes multiple checkpoints and has been fully operational since January 2021 and about
the presence of spoiler groups. Challenges faced by 764 businesses were incorporated and licensed online
the private sector vary by type of firm. The three most until the end of 2021.
commonly cited constraints regardless of the size of
the firm include access to land, access to finance and However, there are gaps in implementing the
corruption. Company Act, in a context of an overall weak
regulatory environment. In Somalia, the private sector
Somalia suffered from inadequate regulatory has adapted to a context of a weak regulatory environment,
frameworks and systems governing the private particularly in sectors such as telecommunications,
sector. Businesses have operated in a legal and regulatory financial services and energy. Therefore, applying
vacuum with little or no formal government enforcement, regulation in this context ex-post can be challenging
instead relying on traditional or customary mechanisms. given the already dominant position of firms. In an
Companies were regulated under the Somali Civil Code environment with limited regulations there is a risk that
of 1974, augmented by the Italian Civil Code of 1942 and a few well-connected firms may become profitable and
several decrees and directives. In practice, firms were limit market entry for other firms. Furthermore, it may
licensed annually by the Ministry of Commerce and be challenging for small and medium sized enterprises to
Industry, and as of the start of 2017, only about 5,000 grow, particularly if there are informal barriers to entry.
businesses were registered – a small portion of the total
number of firms operating informally. The private sector Constraints in accessing finance due to anti-money
operated with outdated legal and regulatory frameworks laundering concerns is a substantial obstacle for the
and inadequate government capacity. Missing or out- growth of the private sector. Somalia is isolated from
of-date company accounts and ownership meant that the global financial sector primarily due to concerns
suppliers, creditors, and customers had to rely on their over financial integrity and not being able to meet the
own information sources to guide their decisions on doing requirements of the (AML/CFT) agenda. These challenges
business in Somalia. mean that Somalia does not have correspondent banking
relationships, which are critical for financial resources to
To address some of the gaps in the regulatory flow to the country. Furthermore, there are challenges for
environment, important foundational steps are being domestic financial institutional to lend to firms over know
taken, such as establishing a Company Act, although your customer concerns. High levels of perceived risk and
there are gaps in implementation. The 2019 Company absence of information on firm’s creditworthiness are
Act provides the regulatory basis for starting a company, other factors that limit access to finance.
shareholder rights, responsibilities of directors, dissolution
of firms, as well as the financial and operational reporting Despite the multiple challenges to doing business
requirements by companies, updating the pre- 1991 in Somalia, there are substantial opportunities for
legislation. In 2021, Regulations to the Company Act were investment, provided enabling conditions are in
issued.These regulations clarify the operating environment place. Somalia’s diaspora provides a potential source of
(such as transparent Articles of Associations), the powers investment to the country. To help explore and tap into
of a Company Registrar, company reporting requirements, the opportunities for investment, investment policy and
as well as security requirements of electronic registration, promotion reforms have been realized. An Executive
among others. Legislative improvements can help firms Decree from Office of the Prime Minister was issued to
to become formal, which can in turn help them to unlock implement the Foreign Investment law were adopted in
access to finance and investment, thereby expanding June 2020, expounding the role of Sominvest, the Foreign
output and employment. Investment Promotion Office in the Ministry of Planning,
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PILLAR 1: JOB CREATING PRIVATE INVESTMENTS - BUSINESS ENVIRONMENT POLICY NOTE
Investment and Economic Development. Sominvest is currently not a contracting state for the New York
capacity to deliver investor services is also being Convention (NYC), therefore the government should
enhanced with a national investment promotion strategy consider acceding to the NYC for the recognition of
now in place; a corporate strategy developed together foreign arbitral awards. Similarly, investors are considering
with related implementation tools and partnerships opportunities to partner with government authorities
at FGS-FMS as well as with private sector and other through public private partnership agreements, although
investment promotion agencies developed. Additionally, again, an adequate legal framework must be in place to
Sominvest is now actively hosting outreach events and safeguard the interests of the public and private sectors.
working with investors to navigate investment entry and
establishment requirements. Facilitating the participation of the private sector
is pivotal to addressing Somalia’s infrastructure
However, potential investors face multiple risks when gap but there are challenges related to a weak
considering investment in Somalia. To address some of institutional environment. Past public private
these gaps, an Investor and Investment Protection Act has partnership (PPP) arrangements have been anchored by
been prepared to provide some safeguards to investors, bilateral agreements that have facilitated investments.
which is currently awaiting parliamentary approval. The While concessions have been explored outside such
Somalia Investment Promotion and Policy framework arrangements, regulatory gaps have been found. The
should focus on investor protection guarantees. The Public Procurement, Concessions, and Disposal Act in
following areas need to be strengthened in the current August of 2016 has significant gaps concerning PPPs
regulatory framework to ensure compliance of the Somalia which limits the effectiveness of the current regulatory
with its International commitment through its BITs. framework. The Act does not adequately cater for
the procurement of PPPs. For example, it provides no
INVESTMENT APPROVAL PROCESS AND framework for the treatment of unsolicited proposals
NEGATIVE LISTS: and limited consideration for the management of
PPP/concession projects following their tender. The
• It is recommended to replace the systematic assessment also cites that the combined legislative
screening and approval process for incoming structure has proved difficult to implement elsewhere,
investors by a system of registration or notification with various governments electing to clearly delineate
to align with international best practice; between the differing procurement and management
demands of (a) simpler, short term supply or service
• If there is a strong rationale to limit or prohibit contracts and (b) longer term, more complex concession/
domestic or foreign investment in certain sectors, PPP arrangements where a higher level of responsibility
the investment framework should be transparent is delegated to the private sector. Thus, to expand
by announcing these exceptions to the principle of Public Private Participation in infrastructure requires the
freedom and then listing all these restrictions in a development of a responsive public-private partnership
Negative List attached to it. model which will address the current absence of a fit for
purpose PPP regulatory framework.
Expropriation: It is recommended that Somalia should
significantly strengthen the standard of protection by D. HOW SOMALIA CAN MAKE PROGRESS
including the terms expropriation, direct and indirect in
the relevant clause and by including the 4 components of To encourage private sector growth in Somalia
the best practice standard, namely: (1) Public interest; (2) and realize the country’s enormous potential,
Due process; (3) No discrimination; (4) No expropriation improvements are needed to the overall security
without fair compensation. environment. Greater stability in the country will give
businesses increased confidence to invest and reduce
Dispute Resolution: It is recommended that Somalia risks. Improvements to security will also help to reduce the
should work on strengthening its dispute resolution informal taxation which is substantial burden to firms and
framework and should consider the following: Somalia requires payments to various state and non-state entities.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
To improve the overall environment for doing national business registration regime, it can be possible
business, it will be important to enforce the to enable a single unique business number. nationwide
provisions in the Companies Act and supporting across FGS and FMS. A business registry data sharing
regulation. Training should be undertaken as well as arrangement could be implemented between Ministry of
sensitization activities targeted at both the government Commerce and Industry, Ministry of Finance, Central Bank
and the private sector in the FMS to ensure the Company of Somalia and other ministries to enable greater use of
Act is adequately implemented and enforced. In business data and interoperability following data security
addition, a business licensing law should be considered provisions. Similarly, encourage business registry data
by parliament pending private sector consultations. sharing with financial institutions to leverage business
The passage of the law will help clarify on mandates, data for KYC requirements. Finally, provide access to
harmonization of business licensing and revenue sharing publicly available business data enhancing business to
arrangement between the FGS and the FMS. business cooperation.
Furthermore, improvements could be made to the Making broader improvements to financial integrity
Company Act 2019 to enhance certain aspects of the through advancing the AML/CFT agenda could
current legislation. The aspects that could be improved support access to financial flows. A National Risk
include protecting minority shareholder rights, enhancing Assessment (NRA) should be used to develop an AML/
data security of business information, inter-agency CFT Action Plan and to prepare for the Middle East and
cooperation on information exchange, unified national North Africa Financial Action Task Force (MENA-FATF)
business registration process, nationwide harmonized mutual evaluation in 2024 to prevent criminal abuse of
licensing and revenue sharing arrangement between the the financial system.
Federal Government of Somalia (FGS) and the Federal
Member States (FMS). To improve the environment for foreign investment,
steps should be taken to enact the pending Investment
The online business registration and licensing system Laws and ratification of investment protection
should be rolled out to the FMS. An FMS readiness conventions and treaties. The laws should be resubmitted
assessment report has been prepared which documents to parliament for enactment and the ratification initiated.
the requirements for cascading physical support, when This body of laws will help to give increased comfort
required, to firms based outside the capital city to register and confidence to investors considering opportunities in
online. The report covered the business and functional Somalia. Similarly, steps should be taken to advance the
requirements and assessment of current resource PPP framework, so that risks are adequately considered.
capacity for future deployment of the online system. It
provides recommendations which when implemented Other steps could be taken to provide advisory
will support the increasing number of firms benefiting support to the private sector in Somalia. Beyond
from an improved business registration regime, including improved formalization and starting of businesses,
integrating legacy systems operational at the FMS explore other possible areas of business environment
level. Notable is the need to engage not only FMS but reforms that are relevant to other stages of life cycle
incrementally looping in the related municipalities as they of a business and its participation in the market, i.e.
have registered a vast number of (small) businesses. operating, and closing a business. Further investigation
and diagnostic may be considered specifically in the areas
The business registry can be further developed to such as (but not limited to) obtaining business location,
support a unified national business registration getting utility connections, employing labor, accessing
regime and support to know-your-customer financial services, resolving disputes, promoting
requirements. By developing and implementing a unified competition, environmental regulations and insolvency.
71
PILLAR 2
CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE
Investing in human capital to promote productivity and an inclusive growth process
Building resilience through improving water security and disaster risk management
72
COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
EDUCATION SECTOR
POLICY NOTE
A. SUMMARY OF KEY MESSAGES • Make investments in second chance education and
skill training opportunities for those that have missed
Investing in Somalia’s human capital will be essential a chance to participate in formal education so that
for the country to escape a fragility trap of economic they can become productive members of society,
exclusion and vulnerability. Forty percent of Somalia’s especially women. This needs to be addressed in the
population is aged 6 to 18. This crucial demographic must short term.
have the opportunity to acquire the skills to contribute
to the economy and society for the country to return to • Use technology to provide learning support to
prosperity. The education system can also be a powerful teachers and students across Somalia in the short to
basis for promoting unity and a Somali identity, which are medium term.
necessary to break the cycle of violence in the country.
As such, the country would need education systems that • A student learning assessment system should be
provide the same learning experiences for all citizens. developed. The system should routinely measure and
Somalia faces enormous challenges to restoring access to enable actions to be taken on the basis of what matters
education, improving learning outcomes, and providing most – what students know and are able to do.
a second chance to the population left out of the formal
education system. In this regard, several opportunities exist • The federal government should take a strong
to enable the country to make quick progress. A strong stewardship role to set policy direction, monitor sector
non-state education provision sector — which has shown progress, and align financial support to the sector.
resilience in the face of challenges — and affordable mobile
connectivity throughout the country offer opportunities C. WHERE SOMALIA STANDS NOW
for leapfrogging and innovation. Recent progress in
intergovernmental efforts to formulate a cohesive School participation in Somalia is among the lowest
response to this challenge have set a strong foundation for in the world. The primary gross enrollment rate (GER) is
addressing the challenges in the education sector. estimated to be 20 percent, with approximately 3 million
primary-aged children (5-14 years) out of school.¹⁰⁴
B. SUMMARY OF KEY ACTIONS Somalia’s GER is significantly below the averages of sub-
Saharan Africa, low-income countries, and fragile-and
• Forge partnerships with the non-state sector and conflict-affected countries of 99, 102, and 94 percent,
communities to deliver affordable and quality respectively. At the secondary level, the number of
schooling in localities that are severely underserved, out-of-school children is even greater. Administrative
with an emphasis on ensuring safe access for data suggests that about 92 percent of children and
girls. This could help to rapidly increase access to adolescents within the official age range are not enrolled
education in the short term. in secondary school.
¹⁰⁴ Based on United Nations Population Fund population data and Education Management Information System (EMIS) data (for 2019) from the
Ministry of Education, Culture and Higher Education (MoECHE).
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PILLAR 2: CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE - EDUCATION SECTOR POLICY NOTE
Large parts of the country remain underserved. available concerning learning outcomes in Somalia.
More than three-quarters of schools in Somalia were Few assessments of student learning at the primary
destroyed during the years of conflict. As a result, of level have been undertaken. These have been carried
the 93 districts in the country, one-third have GERs of out by international non-governmental organizations
less than 10 percent,¹⁰⁵ indicating acutely low access to (NGOs), often with limited government involvement and
education. In the absence of a strong public system, a administered using very small samples. As a result, the
variety of non-state actors have filled the gap in education findings do not provide adequate information about what
provision. Overall, 55 percent of students in Somalia who Somali children are learning in school. Until Somalia can
are enrolled in school are in non-state schools. These generate systematic information about student learning,
are mostly fee-charging schools, which exclude the parents, teachers, policymakers, and development
poorest households. In Banadir, Galmudug, HirShabelle, partners will continue to see education only in terms of
Jubbaland and Southwest, over 90 percent of enrollment inputs and enrollments. Therefore, the country will be less
is in non-state schools. Since non-state schools are mostly able to improve learning outcomes.
in urban and peri-urban areas, there are significantly
fewer educational opportunities for rural children. This The limited information that is available points to
has led to significant inequities in the distribution of low levels of learning. Early Grade Math and Reading
educational resources (for example, schools, teachers, Assessments (EGMA and EGRA) conducted in 2018
learning materials) between rural and urban areas. For identified extremely low learning levels in terms of
instance, in the central southern states, 86 percent of all Somali literacy, English literacy, and, to a lesser extent,
primary school teachers are in urban areas, although only mathematics. The results emphasize the need to ensure
half the population resides in these areas. that learning is occurring in the early grades. By the time
students reach the end of primary and early secondary
Girls are at a distinct disadvantage. Indeed, 72 percent school, they are well below the level of competency
of 15-49-year-old women living in rural areas, and 59 expected of children at these levels. This means that
percent of women in urban areas have never attended students are not equipped with the foundation of skills
formal schooling.¹⁰⁶ Large distances to school, which leads required to engage with the content presented at higher
to increased risks of gender-based violence, create barriers levels. Therefore, by extension, they will have less capacity
to girls accessing education services. At the same time, to contribute to the country’s economic development.
over 90 percent of primary school teachers in Somalia are
male, which is a barrier to uptake of education services by The gaps in learning are reflective of a teaching force
girls. The lower enrollment rates for girls are attributable ill-qualified to prepare students. Only 37.9 percent
to social norms concerning early marriage, expectations of primary teachers across all Somalia are qualified,
that girls support households and the rearing of younger with the lowest number qualified in Banadir, Galmudug,
siblings, as well as the greater ‘social value’ placed on HirShabelle, Jubaland and Southwest (20.8 percent).¹⁰⁷ A
boys accessing education. The COVID-19 pandemic Teacher Proficiency Testing (TPT) exercise in 2019/2020
disproportionately impacts girls by increasing the burden shows that teacher capacity is low, with teachers lacking
and constraints due to social expectations, such as taking pedagogical skills and content knowledge in mathematics,
on household responsibilities and family care-related tasks. Somali language, Islamic studies, and English language.
More than 80 percent of teachers did not understand basic
Increasing access alone is not enough to produce the pedagogical approaches. Therefore, they are not able to
human capital Somalia requires to progress along provide active and engaging learning environments for
the path to prosperity. Students will need a quality their students.
education to acquire the skills to become productive
members of society. There is no systematic information A large number of Somali people — especially
¹⁰⁵ Based on United Nations Population Fund population data and the EMIS data (2019) from the MoECHE.
¹⁰⁶ Somalia Health and Demographic Survey, Federal Government of Somalia (2019).
¹⁰⁷ Somalia Education Situation Analysis. (Federal Government of Somalia).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
women — missed out on basic education; however, a share of the national budget are less than 5 percent.
they could still become more productive workers This is insufficient to support the core functions of an
and engaged citizens if given a second chance to effective public education system, including the payment
learn basic skills. The majority of women over age 20, of teachers and school construction. Over the past
and the majority of men over age 30, were unable to several years, the federal government has also allocated
access formal education. Nationwide, an estimated 56 some of its budget to support education in the central
percent of women aged 15 years or older cannot read, southern states, but the budgeted amount comes to less
compared to 41 percent of men.¹⁰⁸ These low levels than US$2 million per year for all four states.¹⁰⁹ For their
of basic skills affect a range of life outcomes, including part, Member States spend little of their own resources
lower earnings and weaker labor market attachment; on education due to low revenue mobilization and a
diminished financial independence and bargaining small allocation of their revenues to education. Almost
power for women; and less investment in the health and all funding for education in Somalia today is provided
education of children — which in turn contributes to the by external partners, including the United Nations,
intergenerational transmission of poverty. other multilateral organizations, bilateral partners, non-
government organizations (NGOs), philanthropies, and
Strategies for and investments in education must the Somalia diaspora. Although the federal government
include post-secondary (technical and higher) has established mechanisms and processes to liaise with
education to ensure the development of highly donors and coordinate donor-funded programs, it has not
skilled employees and leaders for both the public and yet managed to ensure that the funding flows reinforce
private sectors. Approximately 129 skills training centers Somalia’s evolving federal education system structure.
have been established around the country. However, The MoECHE also faces challenges in coordinating and
a lack of government financing leaves institutions reporting external support from such a diverse group of
dependent on donor funding and only intermittently development partners. This also makes it challenging to
open. As a result, fewer than 14,000 people are enrolled quantify the assistance.
in training institutions nationwide. Although data is
limited and/or unreliable, a 2020 study by the Overseas D. BUILDING SOMALIA’S HUMAN CAPITAL THROUGH
Development Institute (ODI) finds that 76 universities HIGH-QUALITY EDUCATION
were then registered with the Federal Ministry of
Education, Culture and Higher Education (MoECHE). The As Somalia progresses in rebuilding after decades of
ODI also notes that other sources in the country estimate conflict and instability, weak education outcomes will
the figure to be closer to 100, consisting mostly of private need to be addressed to develop the full potential of
higher education institutions. Higher education continues its human capital. Prioritization of investments will be key
to recover from the erosion of the sector during the Civil to educating the large numbers of out-of-school children,
War (1991-2004). with a focus on ensuring that girls participate in schooling
across the country. First, attention will need to be paid to
Education planning is made difficult by insufficient defining a strategic policy framework for rebuilding the
and unreliable financing. Somalia’s ability to expand education system. As such, both the public and non-state
the provision of schooling and systematically raise sectors will need to address the challenges of access,
educational quality and learning outcomes depends on an equity and quality in a strategic and sustainable manner
adequate, predictable, and growing funding base. This in to make progress in improving education outcomes.
turn, depends on: (state and federal government domestic Second, to make quick gains, feasible solutions for rapidly
revenue mobilization and allocation to education; and expanding access to schooling, providing second chance
development partner financing of education projects educational opportunities, and skilling opportunities
and education budget expenditure programs, both on- will need to leverage strengths within the system, such
and off-budget. Domestic allocations to education as as the active non-state sector and strong community
¹⁰⁸ Somalia Poverty and Vulnerability Study (World Bank, 2019).
¹⁰⁹ Somalia Education Sector Strategic Program (ESSP), (Ministry of Education and Higher Education), p. 160.
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PILLAR 2: CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE - EDUCATION SECTOR POLICY NOTE
involvement. These solutions will need to ensure that donor financing and activities in the sector. The federal
constraints to girls in accessing education are addressed government should also play a key role in coordinating
—and that incentives are built into the approaches to financing for the sector. To accomplish this, the MoECHE
attract and retain girls in school. Third, attention to the could ensure that every Federal Member State (FMS)
quality of education will be critical to building human budget spends an agreed minimum amount on education.
capital. Priorities to improve the quality of education Furthermore, where this is not sufficient, a centrally
should include measuring student learning and improving managed National Education Development Fund should
the quality of Somalia’s teachers through continuous be used to ‘top up’ state-level spending in a transparent
in-service support and professional development using and equitable manner.
technology. Despite the currently low levels of human
capital, Somalia’s youthful population indicates a high Expand access rapidly through partnerships. In the
return on investing not only in the school-age population, short and medium run, it will be important to address
but also in girls, women, and disadvantaged men who the challenge of a serious lack of school places that
have been left behind by the formal education system offer basic learning opportunities (particularly for girls,
and who could benefit from a second chance. internally displaced persons [IDPs], rural/pastoralists and
the poorest), as well as the large stock of adults who did
Strong stewardship of the education sector is not attend formal education. This will entail expanding
necessary to set a strategic direction and put it on education places through multiple mechanisms to
a sustainable path to development. For sustainable enhance public provision. These can complement
and coherent development of the sector, the federal the longer-term efforts by the government to expand
government will need to play a key role. Important gains access to schooling, second chance education, and skills
have been made recently, especially with respect to programs, which should focus on underserved, rural
brokering an agreement concerning a national framework communities. Additional measures the government could
for setting education policy. Such a policy will provide for employ to open new schools and learning/skills centers
a federal role in establishing system-wide standards and include partnerships with communities and public-private
norms. A Memorandum of Understanding between the partnerships (PPPs).
federal government and member states was signed in
July 2021 to agree on the functional responsibilities of the Mobilize communities. In rural localities and hard-to-
various administrative levels, which is a critical building reach areas that have low school coverage, member state
block.¹¹⁰ In future, a key role of the federal government governments could engage with Community Education
would be to ensure alignment and coherence across Committees, community-based organizations, or other
various legal and policy instruments, including local educationally oriented members of the community (such
government laws, decentralization policies, and education as university graduates or teacher training graduates)
sector guidelines that reflect a common understanding to establish primary schools. Experience in Somalia,
of these division of functions and responsibilities across especially the Girls’ Education Challenge supported
administrative levels. This would help to strengthen by United Kingdom’s Foreign, Commonwealth and
the enabling environment for decentralized education Development Office (FCDO), shows that engaging
services. Given the large role of the non-state sector, community heads can be an effective way of encouraging
there is a need to strengthen oversight of non-state girls to participate in schooling. Globally —and especially
schools and networks. Data management systems need in fragile, conflict and violence (FCV) contexts, the
to be bolstered, including the adoption of uniform data involvement of communities has been demonstrated to
protocols and the establishment of a clear flow of data be an effective mechanism for introducing accountability
between schools and skills centers, state authorities, and and improving the quality-of-service delivery. Another
federal authorities in terms of planning, open information important benefit of establishing government-supported
exchange, and follow-up, as well as reporting about community schools is that it could bring the schools
¹¹⁰ This is also a completion point trigger of the Heavily Indebted Poor Countries (HIPC) Initiative.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
into the government database, as well as increase the Leverage technology to develop teacher capacity.
legitimacy of local governments. Finally, Somalia can Approximately 30,000 teachers require training
leverage the experience of donor-financed and NGO- and development across the country. Face-to-face
led second chance and skills development programs to training is impractical due to the large numbers to
develop these opportunities at scale and as part of an be trained, risks associated with movement, and
integrated qualifications framework. the need for teachers to be teaching in the schools.
These challenges are substantial; however, Somalia is
Incentivize the non-state sector. Somalia’s private sector equipped with assets that can be leveraged to improve
has shown resourcefulness in helping meet the country’s education outcomes. This includes information and
demand for education. Non-state schools serve over half communication technologies (ICT) infrastructure that
of primary school students and 70 percent of secondary has been substantially improved over the last ten years.
students, especially in the relatively less-stable areas of In 2000, Somalia had only 200 internet users. By 2017,
the country where the public sector has been unable to however, this had grown to 1.2 million users, or more
operate. Leveraging the private sector’s ability to operate than 10 percent of the population. Mobile penetration
in unstable environments by mobilizing private sector is also high, with approximately 90 percent of Somalis
entrepreneurs to open new schools could be the fastest above the age of 16 years old possessing a phone,
way to begin closing this massive access gap, while also 30.8 percent of which are smartphones. This provides
targeting the most vulnerable communities such as the a unique opportunity to deliver education solutions
IDPs. The government could promote this through a PPP that incorporate digital approaches for the continuous
to incentivize entrepreneurs to open new schools in low- professional development of teachers.
access localities by paying a per-child-enrolled subsidy.
This could also help to ensure the national curriculum is Build the post-secondary (technical and higher)
used, and that the public sector is able to regulate the education system. Somalia finds itself today at a time of
private sector. It would also enable the government real opportunity for creating a modern, relevant technical
to rapidly increase its footprint in education provision. and higher education sector, building on the advantages
Regarding the skills sector, enhancing collaboration with afforded by modern learning technologies and the
employers and giving small-scale entrepreneurs access lessons learned during the COVID-19 pandemic. Technical
to training and mentors could increase the labor market education provides immediately relevant skills for serving
relevance of skills, earnings, and profits. the needs of the existing and expanding local labor force.
Higher education expands on this skills agenda. Indeed, it is
Establish a national system for learning assessment. the requisite foundation for the development of the high-
Understanding the performance of the education system in level skills needed to engage in complex, knowledge-based
generating learning in students is critical to understanding work, as well as to contribute to the ongoing development
its current efficacy. It would also inform the policy and of the Somali economy and society. This is especially
implementation improvements needed to ensure student important in enabling women to serve at the highest levels
learning. In addition, this knowledge can inform teachers of leadership in the country. The most talented women
and administrators, providing a basis for interventions to in Somalia must have access to advanced learning and
raise learning outcomes. It can also assist education officials leadership development above and beyond the basic levels
in setting standards and benchmarks, as well as in planning provided by primary and secondary education. Advanced
curricula and teacher training to best facilitate learning technical and higher education sectors—online and on
achievements in children. The effectiveness of skills training campus, with market-relevant, practical and/or academic
programs could also be enhanced through tracer studies and programs—will provide these opportunities for social and
other data collection systems that assess the outcomes of individual growth needed to build a more modern and
graduates in self-employment or the labor market. competitive Somalia.
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HEALTH SECTOR
POLICY NOTE
A. SUMMARY OF KEY MESSAGES • Invest in improving the stewardship capacity of
the Ministries of Health at the Federal and Federal
Health outcomes in Somalia are adversely impacted Member State (FMS) levels.
by emergencies, including the COVID-19 pandemic,
climatic shocks, and the longstanding internal • Clarify functional assignments between the Federal
conflict. Gender disparities are among the worst in Ministry of Health and the FMS Ministry of Health to
the world, characterized by limited access to formal enhance efficiency in implementation and financing.
education, high rates of gender-based violence (GBV),
as well as a nearly universal prevalence of female genital • Leverage the capacity of Somalia’s extensive private sector
mutilation (99.2 percent prevalence) among women. to enhance access to improved quality health services.
These factors have resulted in poor health outcomes for
the Somali people compared to neighboring countries. • Prioritize implementation of COVID-19 response
Of greatest concern is the very rapid population growth measures, including prevention activities, care for
rate of approximately 3 percent per year, which implies infected patients, and the rollout of the COVID-19
that the population will double every 24 years. The vaccine, while also maintaining essential services.
population growth rate outpaces the economic growth
rate, thus placing pressure on scarce resources in a • Increase resource allocations from domestic and
context of widespread poverty and instability. Targeted external sources for the health sector to finance
investments in health service delivery, financing, and priority interventions identified under the Somalia
stewardship are needed. Investing in high-impact, investment case, including the pharmaceutical
cost-effective services that address the leading causes supply chain, human resources for health, and
of mortality and disability (communicable diseases, stronger monitoring and evaluation (M&E) systems.
malnutrition, and reproductive, maternal, neonatal and
child health disorders) would improve health outcomes. RECOMMENDED LONG-TERM PRIORITY
In the context of limited government capacity, health HEALTH INTERVENTIONS
services can be delivered through government-led
contracting of health service providers. This would • Address longer term human resource gaps in the
help to rapidly accelerate access to health services health sector, including skilled health workers and
and strengthen feedback mechanisms for continuous employment opportunities.
improvement in health service outcomes.
• Improve health infrastructure capacity in the country
B. SUMMARY KEY ACTIONS through a combination of public sector infrastructure and
private sector investments encouraged by incentives (for
RECOMMENDED SHORT-TERM PRIORITY example, tax incentives and general investment climate
HEALTH INTERVENTIONS improvements provided by the Government).
• Rapidly scale up access to a prioritized package of • Improve the regulatory environment for the health
essential health services through the contracting of sector through the implementation of relevant laws
competent organizations under the management and regulations, as well as the establishment of
and technical oversight of the Government. functional regulatory bodies.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
• Increase investments in health as the resource is particularly the case in the public sector, where it
base expands. is estimated at 0.23 outpatient visits per person per
year, and 0.81 hospital discharges per one hundred
C. WHERE SOMALIA STANDS NOW people per year.¹¹² The inpatient bed density is
5.34 beds per 10,000 population, substantially
1. Despite modest improvements over the past below the target density set by the World Health
15 years, Somalia’s health indicators lag both Organization¹¹³ of 25 beds per 10,000 population
regional and global averages (Annex, Table 1). and the Sub-Saharan Africa regional average of 9
Life expectancy is 56 years, maternal mortality is a beds per 10,000 population.¹¹⁴ Regarding barriers to
staggering 692 per 100,000 live births, and fertility accessing healthcare services, 73 percent of women
remains one of the highest in the world (with about faced at least one barrier, which included a lack of
7.0 births per woman). In addition, stunting among money (65 percent), distance from health facility (62
children under the age of five has been rising and percent), not wanting to seek care alone (47 percent),
is currently estimated at 28 percent. The burden of and needing to seek a husband’s permission (42
non-communicable diseases (NCDs) is rising and percent).¹¹⁵ Somalia’s public health worker density is
represents nearly 22 percent of Daily Adjusted Life 0.43 per 1,000 people and its private health worker
Years (DALYs) lost. These diseases affect mostly density is 0.49 per 1,000 people. Supply chain
those over the age of 50 — who are also among the management for health is further challenged by the
highest at risk for COVID-19. Women face multiple volatile security environment; poor infrastructure;
challenges, including gender-based violence (with human resource shortages and low capacity; limited
12 percent of ever married women having reported access to supervision and monitoring; and a lack
physical violence during the World Bank 2020 of functional, integrated, sector-wide information
Demographic and Health Survey, although this figure management systems. In 2020, the Ministry of
is likely to underestimate the actual levels), as well as Health revised the essential package of health
difficulties accessing services because of men being services (EPHS) to target priority services to address
responsible for health decisions. Coverage of basic the health needs of Somalis.
maternal and child health services remains extremely
low due to both supply and demand side constraints, 3. By contrast, the private sector plays a key role
with only 21 percent of births occurring in health in the delivery of health services in Somalia. The
facilities. There are similar gaps in the treatment of Government’s role in the provision of health services
childhood illnesses.¹¹¹ Also, 31 percent of women is limited, with most services delivered by non-
receive antenatal care; and a meagre 11 percent of governmental organizations (NGOs). An estimated
children are fully immunized. 60 percent of services and 70 percent of medicines
are delivered by the private sector, primarily in urban
2. Public health facilities are inadequate, areas. Indeed, patients prefer these facilities due to
inequitably distributed, and poorly equipped the perceived higher quality and availability of drugs.
to provide quality care. The availability of human Pharmacies are one of the most accessible health
resources (with 0.92 health workers/1,000 people) care delivery platforms for many Somalis. Clan
is below the World Health Organization (WHO) structures play a major role in determining where
minimum standard of 2.3 health workers per 1,000 people access care, highlighting the importance of
people. As a result of both supply- and demand-side involving community leaders in the delivery of health
impediments, health service utilization is low. This services, including the COVID-19 immunization
¹¹¹ Skilled personnel: nurse, midwife, auxiliary midwife, clinical officer, or doctor. (SHDS, 2020).
¹¹² “Service Availability Readiness Assessment (SARA).” (World Health Organization, 2016).
¹¹³ “Service Availability Readiness Assessment (SARA).” (World Health Organization, 2016).
¹¹⁴ “Service Availability Readiness Assessment (SARA).” (World Health Organization, 2016).
¹¹⁵ “Somalia Demographic Health Survey (SDHS).” (World Bank, 2020).
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PILLAR 2: CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE - HEALTH SECTOR POLICY NOTE
program. Likewise, religious leaders in Somalia 2021) for COVID-19 vaccines and corresponding
are well respected and can also positively influence Vaccine Readiness Assessment (April 2021)
health-seeking behaviors, including improving the highlighted gaps in the following areas: (i) weak
uptake of COVID-19 vaccines. domestic resource mobilization capacity and limited
fiscal space, resulting in a reliance on external
4. The COVID-19 pandemic has exacerbated donor financing; (ii) weak capacity of the national
existing health systems gaps and contributed regulatory authority; (iii) key gaps in dry storage
to deteriorating health outcomes, further and cold chain capacity; (iv) the need to support/
reinforcing the urgent need to strengthen strengthen surveillance activities, including adverse
healthcare systems. The COVID-19 pandemic events following immunization (AEFI) Committees
continues to worsen, with Somalia experiencing its at the FMS level to monitor and improve AEFI
third wave in February 2021. There is widespread surveillance; (v) training for healthcare and frontline
and intense community transmission in all regions, workers engaged in vaccination programs, including
as well as the suspected emergence of new variants. staff safety during vaccination campaigns; and (vi)
According to WHO situation reports, Somalia has implementation and the rollout of social mobilization
reported a cumulative total of only 21,431 cases and awareness-raising programs to address vaccine
and roughly 800 deaths as of September 9, 2021. hesitancy and uptake. Regarding the COVID-19
These figures likely underestimate the actual scope vaccine rollout, the uptake has been slow. A total of
and magnitude of the pandemic. The cumulative 594,553 doses of vaccines have been administered to
positivity rate is 5.5 percent, and the cumulative 336,937 people (2.2 percent). Another 257,626 people
case fatality rate is estimated at 3.2 percent. The (1.6 percent) have received the first dose as of the
COVID-19 pandemic has diverted already limited end of November 2021.
resources from the health sector, exacerbating
long-standing vulnerabilities and disparities. Only a 6. Institutional capacity in the health sector is
small fraction (less than 1 percent) of people living growing, but it remains modest. The relatively
in nomadic settlements and camps for Internally young Federal Ministry of Health (FMoH), established
Displaced Persons (IDPs) have been reached to date, less than a decade ago, aims to play a stewardship
as mobile clinics and outreach campaigns have only role in a challenging context of managing multiple
just started. The government has taken steps to tackle actors with limited human and financial resources.
the pandemic, such as: (i) strengthening testing Although the FMoH has leadership structures and
capacity at the National Public Health and Reference some policies and procedures in place, its decision-
Laboratory in Mogadishu and established testing making processes and management systems are
capacity in Somaliland and Puntland; (ii) putting in not fully defined. In addition, its capacity to manage
place rapid response teams; and (iii) expanding the programs independently is limited. Reliance on
country’s intensive care unit bed capacity. However, external financial and technical assistance remains
there is an urgent need to make further progress, high. The capacity to regulate the private sector
particularly in supporting prevention and the rollout and to contract NGOs is limited, and governance
of vaccines. problems have impeded the transparent
management of the operations of the FMoH in the
5. There have been some modest improvements in past. The current government has demonstrated its
vaccine management (including storage capacity, commitment to fight corruption, as evidenced by the
equipment and transport, and management passage of anti-corruption legislation in September
information); however, the national supply 2019. The Government of Somalia has leveraged the
chain faces ongoing challenges.¹¹⁶ The National lessons learned from the implementation of the First
Deployment and Vaccination Plan (NDVP, February and Second National Health Sector Strategic Plans
¹¹⁶ 'Effective Vaccine Management Assessment”, (World Health Organization, 2016).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
(HSSP-I, 2013-2016; HSSP-II, 2017-2021), together 8. The capacity of Somalia’s Ministries of Health at
with multiple system reforms being done in the the Federal Member States(FMS) level is similarly
country. As such, it has examined ways to strengthen weak. Somalia’s Federal Ministry of Health (FMoH)
essential public health functions of the FMoH. is nascent. It is critical that its capacity to manage
Consultations are currently ongoing concerning the health services be strengthened, including contract
draft Third National Health Sector Strategic Plan management. The Government’s role in health
(HSSP-III, 2022-2026). service delivery is limited, with most services being
delivered by NGOs and financed by development
7. Somalia’s Ministry of Health is nascent and partners. Although the FMoH has leadership
health governance and financing capacities structures and some policies and procedures in
are not yet fully developed. Somalia has limited place, its decision-making process and management
capacity for health sector regulation, data collection systems are not fully defined, and its capacity to
and use, and oversight of health services. The health manage programs independently of partners is
sector has substantial partner fragmentation, which limited. Additionally, there is mixed implementation
decreases efficiency. A 2019 resource mapping and capacity across the six states. The Somalia health
expenditure tracking (RMET) exercise conducted system structure has an overarching FMoH and five
by the FMoH found that of the US$208 million FMS MoHs. The capacities of the FMS are variable,
in total funding for the health sector, US$191 with the four recently established states (Galmudug,
million (67 percent) came from development and Hirshabelle, Jubbaland, and South West), having
humanitarian partners. Most of this funding is off the relatively modest capacities and few resources in
Government’s budget and goes directly to NGOs, their treasuries (around US$100,000 a year). In
thus limiting coordination and federal oversight. addition, they have low budget execution rates, few
Government health expenditure accounts for 17 to no civil servants, as well as a high dependence
percent of per capita health expenditures (2019), on development partners to provide staffing and
relative to 50 percent of per capita expenditures stewardship for service delivery. By comparison,
for donor financing (2019). This results in a high risk Puntland and the self-declared independent territory
of duplication among health activities. As such, it of Somaliland are somewhat better off. Puntland’s
has limited the government’s involvement in many MoH is more experienced in managing some health
aspects of health sector programming, constraining programs, but it also remains highly dependent on
its ability to increase efficiency in spending, as well development partner support, with civil servants
as its overall leadership in the sector. As a result, representing only 26 percent of MoH staffing.
systems for fund flows through the government have Somaliland has the strongest MoH capacity. Finally,
not been fully developed, leaving the government there is a need to further delineate the roles and
with limited public financial management (PFM) responsibilities of the FGS and FMS Ministries of
capacity. Out-of-pocket payments (OOP) as a Health (‘functional assignment’) to make optimal use
percentage of per capita health expenditures in of the limited resources in the country.
Somalia are high at 46 percent. Average annual
household OOP on health is estimated at US$2 D. SHORT- AND MEDIUM-TERM RECOMMENDED
per capita out of a total of US$6 (2019). It varies ACTIONS FOR STRENGTHENING THE HEALTH SECTOR
substantially between the richest quintile and the
poorest quintile, indicating that households are Four strategic areas have been identified for
accessing healthcare services based on the ability to strengthening the health sector over the short and
pay instead of their healthcare needs, thus resulting medium term:
in health inequities. There are almost no formal
risk-protection mechanisms in the country: health 9. Health financing: In the short term, the Government
insurance is limited to private plans for international can increase resource mobilization for the health
companies and NGOs, and are estimated to be 1 sector, improve resource alignment, and coordinate
percent of total health expenditures. with partners by aligning the purchasing of health
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PILLAR 2: CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE - HEALTH SECTOR POLICY NOTE
services. This could be achieved as a steppingstone planning; (iii) GBV services (awareness raising, case
toward greater partner alignment. The Government identification, counselling, and management); (iv)
can focus on alignment in terms of what to purchase, disease surveillance (strengthening and maintaining
specifically, by leveraging its oversight and contracting integrated disease surveillance and response, as well
function to coordinate with NGO partners and as preparedness and response to disease outbreaks);
resources for the government’s prioritized package (v) communicable and select non-communicable
of services. The use of a harmonized, output-based disease prevention, treatment, and detection; (vi)
provider payment formula allows for the lumpsum first aid; and (vii) mental health (including basic
payment of contracted NGOs, with the opportunity psycho-social support and follow up). These high-
to earn a small performance-based bonus based on impact health interventions comprise a subset within
health service improvements. Such improvements the Government’s broader EPHS.¹¹⁷ Further short-
would be demonstrated through health facility term recommendations include the expansion of
assessments, which would also represent a step training for healthcare workers, including increasing
toward a results-based contracting system to further the availability of medical staff to non-urban
strengthen accountability. In the long-term, the areas. It would also include ensuring that adequate
government can increase investments in health as accreditation/ regulatory processes are in place to
the overall resource base expands, especially with the maintain quality care. Finally, it will be important
pooling of health sector resources by financiers. In to strengthen human resource management
addition, it can leverage a similar performance-based information systems (HMIS) to ensure data feedback
payment model when engaging with private sector mechanisms for data quality and use. In the long-
health service providers. It should also increase donor term, the following measures are recommended:
alignment while strengthening government capacity the gradual expansion of health service delivery to
to manage resources and purchase essential goods include the full package of services defined in the
and services. This will contribute to sustainably EPHS; ensuring deployment and retention strategies
increasing the availability and use of resources for are in place to support existing healthcare workers;
health, including those allocated to the frontlines. and utilizing alternative digital means to improve the
timeliness and quality of data submissions.
10. Health service delivery: Learning from local and
global experiences — and based on an analysis of 11. COVID-19 response: In the short-term, a number
cost-effective interventions and burden of disease, of health measures are necessary, including:
investments in high-impact health and nutrition health measures to enhance prevention (including
services have the potential for significant impacts the use of personal protective equipment (PPE),
in the short-term. These include: (i) child health social distancing, and lockdowns as necessary);
services (routine immunizations, micronutrient procurement and deployment of COVID-19
supplementation, promotion of infant and child vaccines to all eligible Somalis; and maintenance
feeding and nutrition referrals); (ii) maternal and of essential health services to protect the recent
neonatal health services, including testing and gains in health outcomes. These measures are
interventions during antenatal care (ANC) visits, needed to urgently control the rate of community
basic and comprehensive emergency obstetric and transmission and prevent adverse consequences
newborn care (BEmONC and CEmONC), and family to other essential health services. In the long-term,
¹¹⁷ The Government’s 2020 EPHS package is comprised of six key areas: (i) Access to care (continuity care planning and coordination, emergency
care, approach to common signs and symptoms); (ii) Reproductive, maternal and new-born health (maternal and new-born care, sexual
and reproductive health); (iii) Life-course, growth and development (childhood and adolescence including nutrition, older age and adults); (iv)
Noncommunicable diseases (health promotion and disease prevention, cardiovascular and pulmonary diseases, diabetes, cancer, mental health
and substance use disorders, injuries, and other NCDs); (v) Communicable diseases (immunization, management of human immunodeficiency
virus [HIV], Tuberculosis [TB], Malaria and Hepatitis, neglected tropical diseases, respiratory infections, gastrointestinal infections, other infections,
and outbreak surveillance); and (vi) Rehabilitation.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
a number of measures are needed, including: private partnerships. Additionally, there is a need
strengthening Somalia’s capacity to deal with future to further delineate the roles and responsibilities of
pandemics by investing in early warning systems, the FGS and FMS Ministries of Health (‘functional
laboratory capacity, and rapid response plans; and assignment’) to make optimal use of the limited
close collaboration with development partners to resources in the country. The new US$100 million
strengthen national regulatory capacity, the roll- World Bank-funded operation, Improving Healthcare
out of the COVID-19 Vaccination Plan, and the Services in Somalia Project (Damal Caafimaad), will
strengthening of the institutional framework for the support the FMoH in strengthening its managerial,
vaccination program. planning, budgeting, contracting and oversight
capacities. It will also assist the FMS in bolstering
12. Stewardship: In the short term, there is a need its capacities.¹¹⁸ In the long-term, there is a need
to strengthen the capacity of the FGS and FMS to address policy and regulatory gaps, including
in the identified priority areas, including health strengthening regulatory/accreditation bodies,
management information systems, contract such as the National Health Professionals Council
management and public financial management, and the National Medicines Regulatory Authority.
regulation and private sector engagement, and Finally, standards for health professionals and health
organizational development. Also, the government services should be established to ensure quality
needs to develop the foundation for effective public- health services for Somalis.¹¹⁹
Table 1: Summary of Short- and Medium-term Recommendations
Area Short-term Recommendations Medium-term Recommendations
Health financing • Use available resources more efficiently through • Increase investments in health as the resource
leveraging the Government’s oversight and base expands.
contracting functions to avoid duplication and direct
services where needed. • Pool health sector resources by financiers.
• Increase resource mobilization for the health sector. • Contract with for-profit health service providers using
the harmonized payment formula.
• Use a harmonized, output-based provider payment
formula for contracted service delivery organizations.
• Contract NGOs to deliver health services and
closely monitor the desired results (outputs,
outcomes, and costs).
Health service • Expand support for training health care workers. • Develop and implement a strategy for efficiently
delivery deploying and retaining health care workers.
• Finance high-impact, cost-effective interventions
to rapidly improve health outcomes, for example, • Finance additional interventions within the
¹¹⁸ The Damal Caafimaad Project will support the rapid expansion of an essential package of health and nutrition services, as well as intensive
government capacity development. The operation will focus on high-impact services that will improve health outcomes and that can be scaled
up across the population in target regions within available resources and service delivery capacity. The project aims to develop the capacity of the
Federal and State Ministries of Health to act as stewards of the health sector, effectively governing the sector and building core functions that will
enable the Government to lead and manage the sector.
¹¹⁹ The Parliament has passed the National Health Professionals Council (NHPC) Act in July 2020. The establishment and operationalization of the
agency is the next step. Regarding the National Medicines Regulatory Authority, after the approval of the Somali National Medicines Policy (May
2014), there has been no major progress toward the establishment of a National Medicines Regulatory Authority. A draft Medicines Drug Regulatory
Act (2018) was endorsed by the Cabinet and is now passing through the Parliament for readings and approval.
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PILLAR 2: CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE - HEALTH SECTOR POLICY NOTE
Area Short-term Recommendations Medium-term Recommendations
for family planning, vaccinations, and skilled birth Government’s essential package of health services
attendance. as additional resources become available and health
outcomes improve.
• Strengthen the HMIS through a focus on improved
data quality and use. • Introduce digital data options to improve the
timeliness of data.
COVID-19 • Enhance prevention measures, including the • Build Somalia’s capacity to deal with future
Response use of PPE, social distancing, and lockdowns as pandemics by investing in early warning systems,
necessary. laboratory capacity, and development of ready-to-go
rapid response plans.
• Procure and deploy COVID-19 vaccines to all
eligible Somalis. • Work closely with development partners to
strengthen national regulatory capacity, roll-out of
• Ensure maintenance of essential health services to the COVID-19 Vaccination Plan, and the institutional
protect the recent gains in health outcomes. framework for the vaccination program.
Stewardship • Develop the capacity of the Federal Government • Develop and enforce a regulatory framework for the
of Somalia (FGS) and the Federal Member States health sector.
(FMSs) in health management information
systems, contract management and public • Continue to develop the capacity of the FGS and FMS.
financial management, regulation, private sector
engagement, and organizational development. • Increase the service delivery role of the FMS, based
on the outcome of constitutional discussions.
• Delineate service delivery roles and responsibilities
between the FGS and FMS, and between the public
and private sectors.
• The FMS should conduct the day-to-day monitoring of
the health service providers contracted by the FGS.
• Develop the capacity for effective public-private
partnerships.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
ANNEXES
ANNEX 1
Table 2: Somalia's Key Health Indicators
WHO AFRO Regional
Indicator 2006 2016 2019a Average (2016)b
Maternal Mortality Ratio (per 100,000 live births) 1040 865 692 536 (2017)
Neonatal Mortality Rate (per 1,000 live births) 45.1 39 Not available (N/A) 26
Infant Mortality Rate (per 1,000 live births) 103.3 80.4 N/A 51
Under-five Mortality Rate (per 1,000 live births) 170.5 128.4 N/A 80.5
Total Fertility Rate (no. of births per woman) 7.2 6.3 6.9 N/A
Adolescent Fertility Rate (births per 1,000 women 127.17 102.14 140 102.1 (2015-2020)
aged 15-19 years)
Stunting (age-for-height among children under five N/A 25.3% (2009) 28% 29%
years of age)
Source: The World Bank at: http://data.worldbank.org.
Note: a The 2020 Somali Health and Demographic Survey (SHDS) included no child mortality data, such as neonatal, infant, and under five mortality rates. This is a major
gap in the results. Discussions are currently under way with partners and the United Nations Population Fund (UNFPA) (which conducted the survey) concerning whether
raw data exist to rectify this, as well as other data gaps in the survey — including the absence of geographically disaggregated data.
b Although Somalia belongs to the WHO Regional Office for the Eastern Mediterranean (EMRO) region, geographically and culturally, it is part of sub-Saharan Africa. As a
result, the AFRO region data are more applicable and are used here.
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GENDER POLICY NOTE
A. SUMMARY OF KEY MESSAGES To strengthen women’s economic empowerment:
• Increase women’s access to finance and capital and
Somalis have poor socioeconomic outcomes, with improve access to better jobs.
stark gender disparities, thereby holding back
Somalia’s progress to strengthen stability and realize • Advocate for enhanced protections of women in
inclusive economic growth. Women and girls, especially the workplace.
those from marginalized groups and internally displaced
communities, confront challenges along the dimensions To strengthen voice and agency:
of: (i) human endowments (health and education); (ii) • Encourage the inclusion and effectiveness of women
access to economic opportunities and productive assets; and minority groups in political processes.
and (iii) voice and agency.¹²⁰,¹²¹ To make progress in
strengthening the socioeconomic outcomes of women • Prioritize passage of critical legislation to protect
and men, a multi-faceted and complementary approach against gender-based violence (GBV) and other
is needed. harmful practices.
B. SUMMARY KEY ACTIONS • Expand and strengthen access to and utilization of
quality, multi-sectoral GBV response services.
RECOMMENDED SHORT-TERM INTERVENTIONS
TO ADDRESS GENDER GAPS RECOMMENDED PRIORITY INTERVENTIONS TO
ADDRESS GENDER GAPS (MEDIUM-TERM)
To strengthen human endowment:
• Expand access to a package of high-impact To strengthen human endowments:
reproductive, maternal, newborn, child, and • Support the development of safe spaces for girls.
adolescent health and nutrition services.
To strengthen women’s economic empowerment:
• Support birth spacing / family planning services to • Address social norms that affect women’s ability to
help reduce the total fertility rate. work and engage in higher value-added activities.
• Increase girls’ access to, and completion of, quality • Address land tenure constraints for women entrepreneurs.
education (including tertiary education), as well as
the development of market-relevant skills. • Support access to finance through digital
identification and developing a pipeline of bankable
• Increase safety for girls and boys in schools, and address micro, medium and small enterprises outside of
school-related, gender-based violence (SRGBV). trade finance with a focus on women.
¹²⁰ F. Musse and J. Gardner, A Gender Profile of Somalia (2013).
¹²¹ These three dimensions reflect the conceptual framework outlined in the 2012 World Development Report on Gender Equality and Development
(https://openknowledge.worldbank.org/handle/10986/4391). It was reinforced within the 2016-2023 World Bank Gender Strategy. (http://
documents1.worldbank.org/curated/en/820851467992505410/pdf/102114-REVISED-PUBLIC-WBG-Gender-Strategy.pdf).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
• Support the availability of mobile banking in literacy rates than men across all population
Somali shillings. groups (Figure 1).¹²² Gender inequalities in
enrollment are pronounced across all Federal
To strengthen voice and agency: Member States, with 72 percent of rural women and
• Expand evidence-based GBV prevention programming, 59 percent of urban women having never attended
including engagement with men, male youth and boys. formal schooling. Barriers to education are linked to
poverty, distance to schools, and entrenched social
• Improve programming to address female genital norms, including social pressures for early marriage,
mutilation/circumcision (FGM/C). expectations that girls support households and
caregiving, and the greater ‘social value’ attached
C. WHERE SOMALIA STANDS NOW to boys’ education. Also, the predominance of male
teachers may discourage the enrollment and/or
HUMAN ENDOWMENTS retention of girls. Almost 92 percent of primary level
Women have lower educational attainment and teachers are male.
Figure 1: Women across all population groups have lower literacy and education attainment
100 100
90
80
(% of population aged 15+)
without formal education
80
Percent of population
70
Literacy rate
60
60
40 50
40
20
30
0 20
10-14 yrs
15-19 yrs
20-24 yrs
25-29 yrs
30-34 yrs
35-39 yrs
40-44 yrs
45-49 yrs
50-54 yrs
55+
Mogadishu Other Rural IDPs in Nomads
Urban settlements
Women Men Overall average Women Men Overall average
Source: “Somalia Poverty and Vulnerability Study.” (World Bank 2019).
Reproductive health outcomes are poor, with an Saharan Africa.¹²⁴ Early marriage and adolescent fertility
estimated maternal mortality rate of 692 deaths per are significant factors in high maternal mortality rates. In
100,000 live births.¹²³ This constitutes an improvement this regard, 36 percent of women aged 20-24 reporting
from the earlier reported rate of 732 deaths per 100,000. having been married before the age of 18, thereby
However, it is still significantly higher than the regional leading to early first pregnancies and high fertility
average of 542 deaths per 100,000 live births in Sub- rates. At 6.9 births per woman, Somalia’s fertility rate is
¹²² World Bank and FAO. “Rebuilding Resilient and Sustainable Agriculture in Somalia.” Country Economic Memorandum, Volume 1. (World Bank,
Washington, DC: 2015). http://documents1.worldbank.org/curated/en/803231522165074948/pdf/124653-Somalia-CEM-Agriculture-Report-
Overview-English-Revised-July-2018.pdf
¹²³ Federal Government of Somalia and UNFPA. “The Somalia Health and Demographic Survey 2020.” (2020). https://reliefweb.int/sites/reliefweb.int/
files/resources/Som%20Gvt%20UNFPA%20Press%20Release_SHDS%20Rpt%20Launch_29-04-20_Final.pdf
¹²⁴ World Health Organization, UNICEF, United Nations Population Fund and The World Bank. Trends in Maternal Mortality: 2000 to 2017. (WHO,
Geneva: 2019).
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among the highest in the world.¹²⁵ Similarly, Somalia’s as family splitting). This has expanded women’s roles as
adolescent fertility ratio is 140 births per 1,000 among income earners, as families break up to spread economic
women between the ages of 15-19. The combination risks and increase access to livelihood opportunities.
of high fertility and extremely poor reproductive However, women’s participation rate in the labor market
health outcomes limit women’s ability to contribute to remains low at 37 percent, as compared to 58 percent of
economic growth and poverty reduction. It also prevents men. Household enterprises are an important source of jobs
Somalia from capturing a demographic dividend. for women, where women’s ownership of such businesses
contributes to one in four jobs for women.¹²⁶ Women
ECONOMIC OPPORTUNITIES entrepreneurs are more likely than men to hire women,
thereby contributing the most to paid employment for
Although women play an important role in women. However, women are more likely to be engaged
strengthening resilience, particularly at the household in lower value-added activities. Women entrepreneurs
level, rates of formal labor market participation are also earn lower revenues than men, with a differential of
low (Figure 2). During crises, gender roles in Somalia have 40 percent in household enterprises and one-third in large
shifted as some households adopt coping strategies (such established businesses.¹²⁷
Figure 2: Labor Force Participation Figure 3: Reasons for Inactivity
100 100
Percent of population aged
non-enrolled population
Percent of inactive and
80 80
60 60
15-64
40 40
20 20
0 0
Mogadishu
Other urban
Rural
IDPs in settlements
Nomads
Female
Male
Mogadishu
Poor
Other urban
Rural
IDPs in settlements
Nomads
Female
Male
Non-poor
Poor
Non-poor
Active: employed Active: unemployed In school Ill/disabled Too young/old
Inactive: not enrolled Inactive: enrolled Waiting for busy season/on leave Family and household care
Source: “Somalia Country Economic Memorandum.” (World Bank 2021) and “Somalia Poverty and Vulnerability Study.” (World Bank 2019).
There are a number of barriers to women’s economic that limit women’s meaningful participation in private
engagement in Somalia (Figure 3). The Somalia Poverty enterprises, thus contributing to a hostile work environment;
and Vulnerability Study identifies expectations for women’s (iii) a lack of control over critical resources including land,
domestic and reproductive responsibilities as the primary financial resources and other inputs; (iv) insufficient market
constraints to women’s participation in the formal sectors research concerning viable opportunities; and (v) a lack of
of the economy.¹²⁸ Additional barriers include: (i) low access to formal networks to provide business guidance.¹²⁹
educational attainment, as well as a lack of vocational or Female youth are often constrained by mobility restrictions,
business skills development; (ii) social norms and dynamics GBV, and early or forced marriage.
¹²⁵ FGS and UNFPA (2020).
¹²⁶ “Somalia Country Economic Memorandum, Towards an Inclusive Jobs Agenda.” (World Bank 2021).
¹²⁷ “Somalia Country Economic Memorandum, Towards an Inclusive Jobs Agenda.” (World Bank 2021).
¹²⁸ “Somalia Poverty and Vulnerability Study.” World Bank (2019).
¹²⁹ World Bank and FAO (2015) and UNDP (2014).
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Figure 3: Women, Business and the Law Index Scores
100.0
80.0
60.0
40.0
20.0
0.0
Madagascar
Eswatini
Mauritania
Chad
Guinea
Equatorial Guinea
Guinea Bissau
Sudan
Mauritius
South Africa
Zimbabwe
Cabo Verde
Namibia
Liberia
Côte d'Ivoire
Zambia
Kenya
Malawi
Burkina Faso
Rwanda
South Sudan
Average
Eritrea
Botswana
Senegal
Nigeria
Mali
Niger
Somalia
São Tomé and Príncipe
Togo
Congo, Dem. Rep.
Mozambique
Seychelles
Lesotho
Ghana
Benin
Gambia, The
Burundi
Uganda
Central African Republic
Sierra Leone
Comoros
Gabon
Cameroon
Congo, Rep.
Tanzania
Angola
Ethiopia
Source: WBL 2020 database.
A recent review of Somalia’s legal framework as part participation in political and public decision-making
of the International Finance Corporation’s Women, forums. Reflecting decades of activism and protest by
Business and Law (WBL) initiative identifies Somali women, recent election cycles in Somalia have
restrictions to women’s meaningful economic been guided by demands for a quota of at least 30
participation (Figure 3). The WBL index examines percent representation for women in elective bodies.
eight key indicators that reflect women’s decisions and The 2016/2017 selection process for Parliament resulted
associated implications for their economic engagement in the selection of 80 women, or 24 percent of the
throughout their working lives.¹³⁰ With a WBL score of representative body. This represents an improvement
46.9, Somalia ranks significantly lower than other Sub- from the 14 percent reached in 2012. The importance
Saharan African countries (with a regional average score of quotas has been reiterated in the 2021 election
of 69.9) and similar low-income economies (with an cycle; the elections for the Upper House (held in July)
average score of 67.2).¹³¹ Somalia’s score illustrates an saw 14 of the 54 seats going to women, translating into
absence of legal gender equality, which affects women’s 26 percent representation. However, this falls short of
ability and/or willingness to work. For example, Article the minimum 30 percent quota for women.¹³² Despite
4(2) of the Family Law of 1975 in Somalia provides progress, advocacy initiatives for the 30 percent quota
that the husband is by law the head of the family. have generally lacked legal enforcement mechanisms.
Furthermore, Somalia’s current legal framework does As such, they have had limited impact in practice.
not provide equal inheritance rights for spouses or Somali women who have participated as political actors
children, with daughters receiving half of the amounts have done so predominantly as civil society leaders
awarded to sons. and human rights advocates, and far less frequently as
formal political representatives. Of the women who have
VOICE AND AGENCY successfully secured political positions, few have the
formal education or technical experience to effectively
Women have limited roles in public decision-making carry out the mandate and duties of their offices.
forums and lower rates of political participation
than men. Socio-cultural norms and the clan-based Gender-based violence continues to present a
political system continue to limit women’s roles significant challenge, especially among internally
outside the domestic sphere, thus hindering women’s displaced persons (IDPs); furthermore, it has been
¹³⁰ WBL indicators examine key considerations related to Mobility, Workplace, Pay, Marriage, Parenthood, Entrepreneurship, Assets and Pensions. For
more information, see: https://wbl.worldbank.org/en/data/exploreeconomies/somalia/2020
¹³¹ IFC. “Women Business and the Law Reform Memorandum for Somalia.” (IFC 2020).
¹³² https://reliefweb.int/report/somalia/situation-somalia-report-secretary-general-s2021944-enarruzh
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exacerbated by the COVID-19 pandemic, ongoing development imperative. Similarly, the Women’s Charter
conflict, and recurring climate-related shocks. GBV for Somalia, issued in March 2019, calls for the inclusion
is widespread across Somalia,¹³³ with displaced women of women across all political, economic, and social
and girls among the most vulnerable to varying forms of dimensions. However, the government’s realization of
violence. In IDP camps and host communities, inadequate these ambitions will require targeted investment and
and unsafe physical infrastructure, as well as distance support by development and humanitarian partners
to water points, markets, health facilities and schools, alike. Recommendations outlined below are intended
has increased GBV risk exposure. Harmful practices to be cross-cutting and complementary, such that
are also prevalent. The 2020 Somalia Demographic progress in one area has a positive impact on a wider
and Health Survey (DHS) indicates that 99 percent of range of outcomes, for example, advancing girls’ human
women have undergone some form of female-genital capital can positively reinforce their ability to join the
mutilation/circumcision, with a large majority of these work force, or to have more decision-making power
being Type III FGM/C that leaves women with longer within households and communities.
term physical suffering.¹³⁴ Early marriage is common,
with 36 percent of women having been married by the HUMAN ENDOWMENTS
time they turned 18. Likewise, adolescent childbirth
(ages 15-19) is high, at 140 births per 1,000.¹³⁵ Recurrent Expand access to a package of high-impact
and complex humanitarian crises—including conflict, Reproductive, Maternal, Newborn, Child, and
climate-related shocks and most recently the COVID-19 Adolescent Health and Nutrition (RMNCAHN)
pandemic—exacerbate already high rates of GBV in Services. The expansion of high impact RMNCAHN
Somalia. Mobility restrictions, loss of livelihoods, and services aims to reduce maternal, newborn and child
a lack of access to GBV service providers as a result of mortality through approaches that include: (i) expanding
the pandemic have contributed to a dramatic spike in Somalia’s Female Health Workers (FHWs), which is a
incidence. Indeed, intimate partner violence and sexual community-based health worker program providing
violence are among the most common violations.¹³⁶ services delivered by women; (ii) increasing facilities’
GBV service provision remains low compared to the opening hours; and (iii) increasing the number of female
needs of women and girls. There is a lack of integrated clinical staff in health facilities, including at least one
services or specialized services for survivors of violence, female qualified health worker in primary healthcare
as well as a lack of safe shelters for women and girls to units, as well as ensuring a more equal gender balance
escape from violence. of clinical staff in larger facilities. Expanding the capacity
of health providers to provide critical services to women
D. SHORT- AND MEDIUM-TERM RECOMMENDED who have experienced GBV and FGM/C should be
ACTIONS TO NARROW GENDER GAPS integrated into primary care services, with a focus on
culturally and gender-sensitive services.
The Somali authorities have recognized the need
to address gender disparities in Somalia as a critical Increase access to birth spacing / family planning
pathway for inclusive development and growth. services to improve women’s health and contribute
The Somalia National Development Plan 2020-2024 to a reduction in Somalia’s total fertility rate (6.9
identifies the need to strengthen gender, human rights, children per woman). These are integral components
and other kinds of social equity as a critical, cross-cutting of the package of high-impact services.¹³⁷ Efforts
¹³³ In Puntland alone, an estimated 25 percent of women have experienced GBV. Johns Hopkins University. 2018. “Gender-Based Violence in Somalia:
Preliminary Findings in Puntland.” Study commissioned by the World Bank, UNICEF, UNFPA and UN Women.
¹³⁴ “Somalia Demographic and Health Survey.” (World Bank 2020). https://reliefweb.int/sites/reliefweb.int/files/resources/Som%20Gvt%20
UNFPA%20Press%20Release_SHDS%20Rpt%20Launch_29-04-20_Final.pdf
¹³⁵ SDHS, 2020.
¹³⁶ UNFPA, GBV Area of Responsibility Somalia. “Overview of Gender-Based Violence in Somalia.” Advocacy Brief. (UNFPA 2021). https://www.
globalprotectioncluster.org/wp-content/uploads/somalia_gbv_advocacy_brief_05march21.pdg
¹³⁷ “Somalia Demographic and Health Survey.”, (World Bank 2020).
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to increase the use of birth spacing / family planning relevant skills. This can be done with a mix of demand
commodities will focus on increasing the supply of and supply interventions. The supply side can focus
modern contraceptives and addressing demand- on the delivery of second-chance services (for girls
side factors constraining the prevalence of modern who have had to drop out of school for social-cultural,
contraceptive use, which is currently 1 percent.¹³⁸ economic and/or conflict-related reasons), skills and
Delaying marriage and reducing early marriage will also entrepreneurship training and higher education. On
be central to reducing fertility rates. Core methods to be the demand side, attention must be paid to financial
used to improve the uptake of modern contraceptives, constraints, social norm constraints, as well as childcare
space births, and delay marriage include: FHW constraints that impede women from pursuing further
engagement with women in their communities; work education and skills training. More specifically, focusing
through religious and community leaders; counseling on women’s leadership skills can lead to a pipeline
by health workers; engaging women in health decision of women pursuing careers in public life, business,
making; and employing contextually appropriate, education, civil society, and so on. This has the added
innovative approaches. benefit of increasing the presence of visible female
role models, which has been shown to enhance girls’
Increase girls’ access to and completion of quality aspirations and commitment to education.
education. Schooling for girls in Somalia (especially
in rural and remote areas) should focus on: (i) bringing Develop safe spaces for girls through school-based
schools closer to home; (ii) making schools safe and programming. The establishment of safe spaces for
welcoming places for girls; (iii) ensuring that costs are girls has been effective across several cultural contexts.
not a barrier; and (iv) improving the quality of teaching It has helped to create an environment for integrated
and learning outcomes. Programming should prioritize programming by addressing a range of needs for
the improvements in the quality of education and adolescent girls, including girls not enrolled in school.¹³⁹
learning outcomes, in part through the development of Programming can include the delivery of vocational and
appropriate curricula, incentivizing trained and motivated life-skills training, the sharing of information related to
teachers, improved measurement of learning outcomes, sexual and reproductive health, learning and discussions
and the promotion of effective school leadership. about GBV, accessing mentorship and peer support
To address social norms that may impede girls’ systems, and shifting harmful social and cultural norms to
participation, programming should include community- support girls in completing their schooling.
level engagement and awareness-raising concerning
the benefits or girls’ education, as well as the eradication Address school-related gender-based violence
of harmful practices, such as FGM and early marriage. (SRGBV). GBV has wide-ranging consequences for
In other country contexts, conditional cash transfers, boys and girls alike, with severe impacts on physical
scholarships, or cash vouchers to families to incentive and emotional well-being, school attendance and
girls’ school completion rates have been effective and performance, and the likelihood of experiencing or
may be tried in Somalia. Incentivizing, training, and hiring perpetrating GBV in the future. The Government of
of female teachers should be prioritized. Improving school Somalia should invest in programming that promotes
water and sanitation infrastructure and introducing schools as safe spaces for children, particularly
menstrual hygiene management in schools can further programming that advances gender-equitable
mitigate the dropout risks of adolescent girls from school. relationships and reduces school-related GBV. This could
be achieved through partnerships with students, parents,
Increase tertiary enrollment and completion rates teachers, administrators, religious leaders and other
for women, as well as the development of market- critical community stakeholders.
¹³⁸ “Somalia Demographic and Health Survey.”, (World Bank 2020).
¹³⁹ See: https://openknowledge.worldbank.org/bitstream/handle/10986/33138/GIL-Top-Policy-Lessons-on-Empowering-Adolescent-Girls.pdf?sequence=1&isAllowed=y
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WOMEN’S ECONOMIC EMPOWERMENT responsibilities are perceived to be of greater importance.
Economic empowerment programming should invest in
Increase women’s access to finance and capital. interventions that analyze and address these norms in
Although there is broad access to mobile money, women order to advance opportunities and accelerate growth.
experience challenges in accessing capital to support Enabling the provision of and access to childcare may also
women-led enterprises. Lack of a trusted means of advance women’s economic empowerment.
identification is a serious constraint, underscoring the
need to accelerate digital identification reforms. Such Address land tenure constraints, a key barrier for
reforms can aid in establishing correspondent banking women entrepreneurs. In addition to the complexities
relationships that are essential for unlocking access accessing land for entrepreneurs in Somalia, women have
to financial flows. There is a case for offering female additional legal and cultural/custom barriers in owning
entrepreneurs small grant funding, as well as supporting and renting property. Longer term initiatives, such as
women entrepreneurs through savings groups. As efforts policy reforms, could be complemented with shorter-
continue to support the development of Somalia’s term initiatives that support women entrepreneurs.
banking system, consideration could be given to These could include exploring guarantees and finance
cash flow-based lending to reduce obstacles, such as for deposits as an alternative to requesting land as
collateral requirements, that pose constraints to women collateral. Land security also encourages female farmers
entrepreneurs seeking financing. Exploring alternatives to to invest in agricultural production. Supporting women
collateral requirements, such as the use of psychometric entrepreneurs in Somalia fosters additional paid work
and behavior data to assess creditworthiness as a opportunities for women.
replacement for asset collateral, should be explored as
well. Improved coordination and collaboration across Reform policies to advance women’s economic
lending facilities and development partners engaged in empowerment. There are a number of policy reforms
access to credit and financial services is also needed. that can support women’s economic empowerment. For
example, the current provisions in the Labor Code of 1972
Support access to better jobs for Somali women. under Articles 88 and 91 could be repealed or replaced
Connecting women to more profitable segments of the with a legal amendment allowing men and women to have
value chain will help women overcome other constraints the same access to jobs. Furthermore, an Article could be
— such as lack of access to capital and networks — added stating that men and women can work in industries
thus, helping them to obtain better jobs. There are also and work the same hours without gender discrimination.
opportunities across multiple sectors, including catching Alternatively, a general Article could be drafted to prohibit
and exporting fish, dairy and livestock, trekking with workplace discrimination on the basis of gender. Article
animals in search of higher market prices, currency 4(2) of the Family Law can be repealed or amended to
exchange, and the trading of higher value goods. allow women and men to be heads of households equally.
In addition, to support women’s entrepreneurship,
Address social norms and perceptions that affect policymakers should consider introducing legislation or
women’s ability to work, including their ability to amendments that prohibit gender-based discrimination
engage in more productive work. Women’s work in access to credit. Such provisions could be included in
opportunities are affected by social norms both within the Penal Code of 1964 or any laws that deal with equality,
and outside of their households — whether it is an equal treatment, or protection of consumer rights.
inability to rent a workspace, access financial services, Legislation or amendments to the Family Code of 1975
or the strong belief that women should only work if could also be introduced to establish that both spouses
their husbands cannot support their family. Culturally, and children have equal rank and rights to inherit assets
to the extent possible, men avoid buying from women’s when there is no will.
businesses, and minimize their interactions with women.
Women are absent from networks that are dominated Advocate for enhanced protections for women in
by men, particularly where information is shared about the workplace. The risk and fear of workplace GBV, such
trading practices. Women’s child-bearing and household as sexual harassment, exploitation, and other violations
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outside the household, is a key barrier for women. It the full range of needs — including physical and mental
keeps them within the household and prevents them from health, safety, and psychosocial and economic impacts —
searching for employment. Advancing legal and policy of survivors. Support should also enable better access to
reforms, codes of conduct and workplace standards justice. Fostering a service system that is safe for survivors
that address sexual harassment and other forms of GBV to seek assistance also requires investment in interventions
is critical to creating a more supportive and enabling that promote survivor-centered beliefs, attitudes, and norms
environment for women’s economic participation. among service providers and the wider community. This
would encourage survivors to come forward and seek care.
VOICE AND AGENCY
Expand evidence-based prevention programming
Advance the inclusion of women and minority groups that addresses harmful and discriminatory social
in political and decision-making processes. Greater norms and prevents the perpetuation of violence. To
political commitment is required to ensure that quotas for date, primary prevention efforts in Somalia have focused
women in politics are maintained. In addition, the barriers on strengthening women’s legal rights and protections
that female aspirants face in participating in political life and promoting gender equality through legislative and
should be addressed. Oftentimes, female political leaders policy instruments. Priorities for national and regional
who overcome the barriers to become elected officials governments in Somalia include strengthening and
lack the education, technical expertise, networks and enforcing legal protections, enhancing access to justice,
experience to make an impact in their roles. Thus, there is and achieving gender equality objectives. At the same
a need to provide hands-on training, and support for the time, at the community level, there have been some
female political leaders. This should include exposure to promising, small-scale trials of gender transformative
“soft skills”, such as leadership training, mentorship, and social norm interventions to prevent GBV. Indeed,
peer support systems. emerging evidence suggests that carefully designed,
community and values-based economic strengthening
Prioritize the passage of critical legislation to protect and social norm interventions can have a positive
against GBV. Advancing legal protections that protect effect on GBV-supportive beliefs and behaviors.
women and girls and enables them to live their lives Continued testing and evaluation to determine
free from violence remains a legislative priority. The opportunities for replication and expansion of such
Government of Somalia should advance efforts to ensure programs should be prioritized.
the approval and implementation of policies and laws
that prevent and mitigate risks of GBV. The passage of Engage men and male youth. Advancing women’s
key legislation, such as the Sexual Offences Bill (which is socioeconomic empowerment and addressing the
pending at Federal Parliament), is critical to establishing protection needs of vulnerable groups involves the
accountability systems in the country, as well as to engagement of men and male youth, acknowledging
advancing protections and for women and girls. the multiple roles they play, not just as barriers, but as
partners, family members, service providers, community
Expand and strengthen access to and utilization of leaders, policymakers, and as potential change agents.
quality multi-sectoral GBV response services. Available Engaging men also requires further examination and
GBV response services are predominantly delivered by efforts to address the challenges confronting men and
local and national Somali non-governmental organizations male-youth, particularly in terms of access to livelihoods,
(NGOs). They are supported by United Nations (UN) reducing inequality, and finding alternate means of
agencies and international NGOs within the GBV sub- fulfilling their culturally-ordained roles.
cluster. Government efforts should focus on expanding
access to life-saving GBV services as part of humanitarian Improve FGM/C policies and programming.Comprehensive,
assistance. At the same time, the Government should build ‘zero tolerance’ laws are essential to the work to end FGM, as
the national service infrastructure and capacity of state they demonstrate a commitment by governments to ending
actors and Somali civil society to deliver care, support and the practice and show that all forms of the practice are
protection for GBV survivors. This support should address harmful and unacceptable. Governments should also
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take stock of current FGM/C programming to improve women’s initiatives and groups, as well as with critical
coordination and harmonization of advocacy, prevention gender champions, and religious and clan leaders. This
and response programming, as well as to identify would help to advance advocacy efforts, foster learning
effective programming for replication and expansion. and knowledge exchange, and address/dispel myths
The Government should foster collaboration with surrounding the practice.
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SOCIAL PROTECTION
POLICY NOTE140
A. SUMMARY OF KEY MESSAGES B. SUMMARY KEY ACTIONS
Somalia’s social protection system is in its early SHORT-TO-MEDIUM TERM:
stages. It is anchored in the Baxnaano shock-responsive
safety net program and the unified social registry. The • Secure sustained funding for the Baxnaano cash
Baxnaano program covers less than 10 percent of the transfer program.
population, whereas poverty is estimated at 70 percent.
The Baxnaano program and the development of a national • Adopt a poverty-based, targeted approach to the
social registry are important steps toward an inclusive Baxnaano program to ensure an impact on poverty.
and shock-responsive social protection system. However,
achieving an impact on poverty and food security will • Introduce a youth-targeted safety net program under
require expanding coverage, sustaining funding, and the umbrella of the Baxnaano platform to ensure
continuing the commitment to develop the government’s consolidation and coordination across interventions.
delivery systems with sufficient institutional capacity.
Further, Somalia’s growth and stability will in part depend • Adopt a data protection and data privacy law to
on whether the country’s youth have socioeconomic enable the government’s direct management of
opportunities. Although job creation is a primary function beneficiary data in accordance with internationally
of a healthy and private-sector-led economy, productive acceptable standards.
safety net interventions can play a role in the provision of
temporary employment opportunities, building soft skills • Launch the foundational identification (ID) system
to support engagement in productive, income-generating to enable secure and effective verification of
activities, and providing youth with opportunities to beneficiaries of social protection programs.
become active members of the society. Shifting the focus
of Somalia’s safety net system from humanitarian relief MEDIUM-TO-LONG TERM:
to a government-led and implemented safety net system
with human capital objectives will also require addressing • Scale up the Baxnaano program coverage to at
several policy and regulatory gaps. In this regard, multi- least 30-40 percent of the population to ensure
sectoral collaboration will be key to operationalizing a a significant impact on poverty reduction and
human capital approach to the safety net. food security.
¹⁴⁰ This Policy Note limits the discussion to the social safety net and associated delivery systems, rather than the broader social protection sector.
This includes: the social safety net, pensions, and jobs and labor market and delivery systems. Pensions and jobs are discussed under separate
Policy Notes.
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• Expand the intake registration in the social registry to are among the lowest in the world, likely resulting in
at least 40 percent of the population, and coordinate commensurate human capital deficit. However, there is
the registry with the disaster risk management (DRM) insufficient data to determine Somalia’s Human Capital
system to ensure an effective and rapid response to Index ranking.
any potential crisis.
Social protection (SP) can play a critical role in
• Build a consensus for a governance model of the addressing chronic poverty, protecting household
Baxnaano program within the federal system, food security and livelihoods, and promoting human
specifically, for when the government takes direct capital. Predictable and reliable safety net interventions
implementation responsibility from the World Food can support families in accessing food; investing in human
Programme (WFP). capital; increasing precautionary savings; improving
access to credit; enhancing livelihood strategies; and
• Protect and enhance the integrity and effectiveness avoiding negative coping mechanisms during crises.
of the Baxnaano system through committing to the Efficient, inclusive, and transparent SP delivery systems
implementation of technically sound and transparent support countries in identifying the poor and most
delivery systems and enhanced institutional capacity vulnerable. With this information, countries can provide
of the federal and FMS Ministries of Labor and Social socioeconomic benefits and services, promote social
Affairs (MoLSA). cohesion, and facilitate a rapid response during a crisis.
C. WHERE SOMALIA STANDS NOW Social protection can also contribute to broader
peacebuilding and stabilization in countries
Somalia is challenged with widespread and experiencing fragility, conflict, and violence (FCV).
deepening poverty, chronic vulnerability to shocks, Specifically, a nationally owned safety net can support
and extremely low human capital. Nearly 7 out of 10 citizens’ confidence in institutions by signaling the
Somalis live in poverty with an average poverty gap of 29 government’s continued commitment to improving
percent, with significant regional variations.¹⁴¹ Poverty is people’s lives, thereby upholding its social contract
more acute among children and youth, as well as in rural with its citizens — especially the most vulnerable and
areas and among settlements of internally displaced marginalized communities.
persons (IDPs). Moreover, various shocks are common,
such that nearly 66 percent of households reported Consequently, SP is an important part of the
experiencing at least one type of shock in the past 12 strategy of the Federal Government of Somalia
months. Recurrent shocks threaten the livelihood of (FGS) to fight poverty, enhance resilience, support
millions and deepen Somalia’s chronic food insecurity. shared prosperity, and promote human capital. The
These were exacerbated recently by droughts, a locust Ninth National Development Plan (2020-2024) focuses
infestation and the COVID-19 pandemic. Currently, nearly on building human capital and increasing resilience to
3.5 million people across Somalia are expected to face high shocks. At the same time, the Social Protection Policy
levels of acute food insecurity through the end of 2021, with (2019) and the Implementation Framework (2020)
approximately 1.2 million children under the age of five prioritize and operationalize a vision and strategies for a
likely to be acutely malnourished.¹⁴² Vulnerable groups, gradual transition from dependency on humanitarian aid
including the poorest, informal sector workers, women to a government-led SP system in Somalia. Consequently,
and youth, are disproportionately impacted by shocks Somalia is gradually establishing the building blocks of a
and resultant reduced socioeconomic opportunities. national social protection system, starting with: (a) a shock
Furthermore, Somalia’s human development indicators responsive safety net program, known as Baxnaano; and
¹⁴¹ World Bank Group. “Somali Poverty and Vulnerability Assessment: Findings from Wave 2 of the Somali High Frequency Survey.” (World Bank,
Washington, DC., 2019).
¹⁴² https://reliefweb.int/sites/reliefweb.int/files/resources/FSNAU-FEWS-NET-2021-Post-Gu-Technical-Release-9-Sep-2021-%28English%29.pdf.
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(b) a unified social registry, which consists of a database than two-thirds of Somalia’s population. Indeed,
of the poor and vulnerable. Both are supported by Somalia has one of the largest youth bulges globally.
the World Bank. Although these are steps in the right However, as a result of protracted conflict, two
direction, the Somalia SP system is still in its early generations of youth have been denied education,
stage. As such, it will require the Federal Government livelihoods, and a chance at a normal and peaceful
of Somalia’s sustained commitment and particular life. In short, they have lacked socioeconomic
attention to the following challenges: opportunities. Consequently, young Somalis are
increasingly turning to crime and radicalization and are
i. Low coverage of the national safety net at risk of being recruited by armed groups. However,
program. The Baxnaano program provides regular they also represent a critical national resource in
cash transfers to 200,000 rural poor and vulnerable driving peace, stability, economic growth, and national
households (approximately 1.2 million people), transformation. In this context, SP can play a key role
including children under five years of age across in addressing the youth issue by supporting their
Somalia. This constitutes around 9 percent of the socioeconomic welfare and human capital through
population¹⁴³ in comparison to a poverty rate of investments in their productivity and growth.
about 70 percent. Currently, the Baxnaano program
is the only national safety net program. Although iii. Social protection spending is very limited. The
it is an important step in the right direction, such FGS’s limited fiscal space limits its investment in
low coverage implies limited ability to effectively social services and human capital accumulation.
contribute to poverty reduction and human capital Therefore, it is largely reliant on external assistance,
growth. Further, the Baxnaano program’s current which limits its ownership and engagement.
focus on targeting families with young children Although government expenditure has expanded
means that other vulnerable groups are excluded significantly over the past five years, spending
from safety net assistance. The Baxnaano program remains concentrated on security and public
targets women as direct recipients of the cash administration, reflecting the immediate priorities
assistance, which increases the potential of the of peacekeeping and peacebuilding. Given the
program’s impact on women’s empowerment and development challenges, particularly among the
financial inclusion. There is a wealth of international youth, putting investments in human capital and
evidence on the impact of cash transfers on poverty building citizen resilience to recurrent shocks
reduction and the empowerment of the poor and should be at the center of the peacebuilding and
women. For example, a 2016 study by the Overseas development agenda. Indeed, it can be instrumental
Development Institute (ODI)¹⁴⁴ found that cash in enabling a medium-term recovery and longer-
transfers reduce monetary poverty, raise school term sustainable development outcomes.
attendance, stimulate the use of health services,
and improve dietary diversity. As such, they can help iv. Weak, but growing, institutional capacity.
foster economic autonomy among beneficiaries. The establishment of the Baxnaano program is
Furthermore, they are associated with a reduction facilitating efforts to build institutional capacity and
in child labor, and an increase women’s decision- develop the national delivery systems, including
making power and choices. the Unified Social Registry (USR). However, these
are still at a nascent stage. There is a way to go
ii. Limited socioeconomic opportunities for the before the government can fully take over direct
youth. People under the age of 30 represent more implementation of the Baxnaano program and the
¹⁴³ This is based on a population estimate of 15 million and a household size of 6 persons.
¹⁴⁴ The study is a rigorous review of the literature of 15 years. It covers the impact of cash transfer programs from 2000 to 2015. https://cdn.odi.org/
media/documents/11316.pdf
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USR.¹⁴⁵ International experiences (including during Development Association (IDA) grants covering the
the COVID-19 crisis) demonstrate the critical enabling program through August 2023. Going beyond this period,
role of an existing database of the poor (USR), as well it is recommended that the FGS commit adequate
as well-established cash transfer delivery systems for financing to the Baxnaano program, either through its
rapid responses to crisis. Relatedly, Somalia is taking national budget or from external sources. This will help to
steps to develop a Disaster Risk Management (DRM) ensure the program’s sustainability over a longer period
framework to anticipate, manage, and respond to of time. Sustained multi-year financing to the Baxnaano
shocks. However, this has not yet been closely linked program will also be critical in preserving and expanding
with the development of the Baxnaano program human capital gains. It will enable Baxnaano households
and the USR, which is key to enabling it to be truly to move out of poverty over time. Additionally, further
responsive to crises. enhancement of cross-sectoral coordination (for
example, the Baxnaano program, education, and DRM)
v. There has been slow or stalled progress in key, would strengthen the impact of these programs.
pending policy and regulatory actions, affecting
the government’s ability to directly implement Expand Baxnaano program coverage and the adoption
the Baxnaano program. The partnership between of poverty-based targeting. Despite the important role
the FGS and the WFP regarding the delivery of that humanitarian support plays in mitigating severe food
the Baxnaano program has been instrumental to insecurity, it is mainly concentrated in urban IDP camps
the success of the program. By leveraging the and provides only short-term relief. Expanded, inclusive
WFP’s experience and well-established delivery and sustained coverage of the Baxnaano program is
platform, rapid results have been achieved on the needed to ensure its impact on poverty and human capital
ground. However, it is of a strategic importance accumulation. It is recommended that the FGS explore
for building citizen’s trust in the government that possibilities for expanding the Baxnaano program
direct implementation of Baxnaano program be coverage to 20 percent of the population in the short-
carried out by government institutions. This requires to-medium term and 30-40 percent in the medium-to-
developing the government’s own delivery systems long term. At the same time, it should adopt a poverty-
and addressing existing policy and regulatory gaps, based targeting approach that ensures outreach to the
including: (a) a functioning national ID system; extreme poor and those at the bottom 40 percent in the
(b) a data privacy and data protection law; and poverty ranking.
(c) reaching a consensus about the governance
structure for Somalia’s safety net system within the Adopt an integrated human development approach
federal system. to social protection. The Baxnaano program links its
households to nutrition support and works to enhance
D. HOW SOMALIA CAN MAKE PROGRESS demand for these services. However, these linkages have
been modest due to capacity and supply side limitations.
Need for sustained investment in the Baxnaano As such, it is recommended that the government make
program. With the current coverage level of the more of a concerted effort in coming years to expand
Baxnaano program (9 percent of the population), the cash transfer linkages with broader health and education
annual budget needed is US$55 million.¹⁴⁶ Funding of sectors. This will enhance human development and
the first three years of the Baxnaano program has been human capital outcomes, while also recognizing on-going
exclusively provided by the World Bank, specifically efforts to address supply constraints. Activating the role
through a total of US$175¹⁴⁷ million in International of the high-level Social Protection Steering Committee
¹⁴⁵ In the absence of these policy and regulatory actions, the Baxnaano program and the USR are implemented through a partnership with the WFP
and the United Nations Children’s Fund (UNICEF). This is a temporary arrangement for risk mitigation until the government’s systems are in place
and functional.
¹⁴⁶ This is inclusive of the management and delivery costs.
¹⁴⁷ The funding also includes financing for the development of the national delivery systems.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
(SPSC)¹⁴⁸ would be instrumental in advancing this agenda of Labor and Social Affairs (supported by the World Bank)
by ensuring more coordinated policies and programming. is making good progress in developing the Baxnaano
delivery systems.¹⁴⁹ However, the functionality of these
Introduce a youth-targeted productive safety net. systems and the government’s ability to take over direct
An effective response to the demographic youth bulge implementation will depend on: progress in establishing
challenge will require a longer term, multi-sectoral and rolling out the foundational ID system to support
approach centering on the development of a private verification for safety net benefits; adopting a national
sector-led formal economy. Nonetheless, SP has a role in framework/law for data protection and data privacy;
targeting vulnerable, poor youth lacking socioeconomic and reaching consensus about the governance model
opportunities. It can provide them with temporary for the national safety net program(s) within the federal
employment opportunities and help in building their system. Without these actions, the security, fiduciary and
skills to support their engagement in productive, income- political risks remain high for the FGS to assume direct
generating and/or entrepreneurship activities. As such, it is responsibility for implementation.
recommended that the government develop a productive
safety net for poor and vulnerable youth, building on on- Expand coverage of the USR. A central aspect of a shock-
going efforts by the MoLSA under the Baxnaano program. responsive safety net system is a readily available database
The goal would be to develop design options for such a of poor and vulnerable individuals, which can be supported
productive safety net and, to the extent feasible, by building by the USR in Somalia. The USR is a platform for collecting
on the Baxnaano program delivery systems. socioeconomic data about households. It supports the
rapid and cost-efficient identification of and eligibility for
Integrate the Baxnaano program shock-responsive safety nets during emergencies, as well as other social
delivery models within the DRM system. In order for services and benefits for longer term development.
the Baxnaano program to effectively respond to shocks, Thus, it could be used to enhance coordination, as well as
its shock-responsive delivery systems need to be well support for the uptake of potential beneficiaries by various
integrated within the DRM system and its development programs, including for crisis response. Such programs
early on. Therefore, it is recommended that the FGS would be implemented by different partners and ministries.
identify and support governance and operational linkages As such, a functional USR with expanded coverage is a key
between the Baxnaano program and DRM development aspect of the government’s preparedness for responding
processes to ensure integrated and effective DRM and a to shocks. To that end, it is important to expand intake and
shock-responsive safety net. registration in the USR beyond the already planned and
funded registration of 250,000 households (that is, less
Address the policy and regulatory gaps for the than 10 percent of the population)¹⁵⁰ to at least one million
government’s direct implementation of the households (40 percent of the population) in the medium-
Baxnaano program and the USR. The Federal Ministry to-long term.
¹⁴⁸ The SPSC was established in 2020 with the objective of providing inter-ministerial policy guidance and ensuring coordination. It is chaired by
the Deputy Prime Minister and includes sectoral ministers, with the MoLSA acting as the Secretariat. The Committee has met only once since
its establishment.
¹⁴⁹ Delivery systems include: targeting, beneficiary registration and enrollment, identity verification, payment delivery, beneficiary data management
and updates, grievance redress, and monitoring and evaluation.
¹⁵⁰ Based on estimated population size of 15.9 million persons and a average family size of 6 individuals per family.
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WATER RESOURCE
MANAGEMENT POLICY NOTE151
A. SUMMARY OF KEY MESSAGES
• Strengthen flood and drought risk management
Water insecurity creates economic and human measures, including through improved coordination
development challenges in a multitude of complex with the Ministry of Energy and Water Resources
ways. Water insecurity in Somalia — including exposure to (MoEWR) and the National Disaster Risk
increasingly frequent floods and droughts — is exacerbated Management actors.
by environmental degradation and climate change, both of
which can make rainfall more erratic. At the same time, SHORT- TO MEDIUM-TERM ACTIONS:
they reduce the ability of watersheds to naturally store,
treat and slowly release water for productive and human • In urban areas, the government should establish
consumption. The challenges of achieving Water for All an urban service delivery model to support rapid
have been further exacerbated by the global economic urbanization, as well as rural-urban linkages.
fall-out from the COVID-19 pandemic, resulting in poor
macroeconomic performance. This has also led to a • Ensure that further investments prioritize inclusion
decline in available resources for the water sector. Sector and growth, such as the need to reduce disparities
financing constraints and the rapidly growing needs between internally displaced persons (IDP) and
fueled by forced displacement and urbanization have non-IDP communities, the rural-urban gap, and
further strained the State’s ability to maintain inclusive food-insecure households with low levels of water
and sustainable water services, thus amplifying social and consumption.
gender inequalities. Breaking this cycle means building
resilience to economic and climatic shocks through a more • Improve water and land management practices,
diverse and dynamic urban economy, as well as a more including through soil conservation and flood
secure rural economy. Both the urban and rural economies management for new projects.
need to be underpinned by affordable, inclusive, and
reliable water services, which represents a key pillar for • Explore the use of new technologies, such as manual well
improving human capital development. drilling, as well as the introduction of farmer-led irrigation.
B. SUMMARY KEY ACTIONS C. WHERE SOMALIA STANDS NOW
SHORT-TERM ACTIONS: 1. There are sufficient water resources, provided they
are well-allocated.
• Establish the institutional framework for water
sector governance in line with the National Water Somalia’s largest natural water supply source is
Resources Strategy. groundwater, and it provides the main storage
¹⁵¹ This Policy Note draws on “Digging for Data: Towards Understanding Water as a Limiting or Enabling Factor for Socio Economic Growth in Somalia.”
The Economics of Water Report, published by the World Bank in December 2021, was authored by Chantal Richey, Philip Schuler and K.C. Shyam.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
medium. Springs are also found in many places, but land and water resources. In cities, piped networks,
discharges are small and disappear downstream because point source vendors at boreholes and dug wells, as
of water withdrawals, infiltration, and evaporation. There well as truckers and animal and human-drawn carters
are two perennial rivers in the country, the Shabelle and deliver water supply services. Much-needed economic
the Jubba. The Jubba flow is more than twice that of the diversification in urban areas could be supported by
Shabelle, and the Shabelle flow almost halves before water availability, potentially generating substantial
recharging groundwater within the basin. For most returns due to economies of scale and scope.
years, the Shabelle river is a closed basin, with all water
consumed within the basin. However, occasionally, very Low levels of access to safe, reliable, and readily
wet conditions cause the river to overflow and discharge accessible improved water sources compromises
in the Jubba River and the ocean. labor productivity and human capital development.
The World Health Organization (WHO) and the United
Somalia should have sufficient, long-term renewable Nations Children’s Fund (UNICEF) estimate access to
groundwater and surface runoff resources to meet be 52 percent nationally (82 percent urban; 28 percent
water demands — provided water is efficiently rural). Access to basic sanitation is lower at 38 percent
managed and allocated to the most productive needs. nationally (61 percent urban; 20 percent rural).¹⁵²
With the exception of Banadir, water availability in all regions Inequalities between rural and urban areas are extensive,
should be sufficient to meet the needs of the population, as are inequalities between urban IDPs and other
livestock and agriculture — without significantly affecting households. The rural-urban gap in Somalia is estimated
environmental flows. Therefore, it is possible to overcome at more than 50 percentage points in terms of access to
localized, acute water scarcity at the district level. At the basic water supplies, which is the highest in the world
same time, it is also possible to overcome vulnerability to (WHO and UNICEF 2019). In both rural and urban areas
variable rainfall at the community and household levels, of Somalia, diseases associated with poor water lead
which negatively affects people’s health, education and to reduced labor productivity. However, the economic
long-term human development outcomes — particularly impacts are particularly acute in rural areas, where
for women and vulnerable groups. communities are constantly battling environmental
and macroeconomic shocks instead of building more
2.Water is critical for economic growth. It is also necessary productive and resilient economies. In the rural water
to support the rural livestock sector, to diversify the sector, one or two positions may be reserved for women
urban economy, and to develop human capital. in village water committees. However, customary law
and cultural norms undermine women’s input into
Water is critical for economic growth in both rural management and decision making. Women may be
and urban areas. Water is essential for livestock, consulted about the community management of water
agriculture, and forestry, which provides an important resources, but they are traditionally excluded from the
source of livelihoods, particularly for rural and nomadic final decision-making process. This weakens effective
populations. In rural areas, water sources tend to be water governance and underscores the need to reform
used for multiple purposes, including drinking water for rural, participatory decision-making processes.
domestic use, as well as to water livestock. Agriculture
and livestock also dominate Somalia’s exports. More 3. Short-term weather shocks and long-term climate
than half of Somalia’s population are estimated to live change are affecting the economy and contributing
in urban areas, leading to increased demand for water to humanitarian crises, underscoring the need for
by households and businesses (World Bank 2021a). targeted investments.
Large cities close to drought-prone areas have received
influxes of IDPs, thereby putting pressure on scarce In the absence of investments in the water sector,
¹⁵² WHO and UNICEF. “Progress on Drinking Water, Sanitation and Hygiene: 2017 Update and SDG Baseline. (WHO & UNICEF, Joint Monitoring
Programme, Geneva and New York, 2019).
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particularly water storage facilities, the population COVID-19 pandemic led to lower revenue collection,
and the economy will continue to be affected by a fall in capital expenditures, and competing sector
short-term weather shocks and long-term climate priorities. Planned investments in the water sector did
change. Seasonal rains and periodic droughts and not materialize. As there is limited state engagement in
flooding determine short-term water availability, the water sector, other actors —including international
especially in areas distant from the perennial rivers. partners (often for humanitarian reasons), the private
Meanwhile, climate change is changing long-term sector, and households themselves — are directly
trends in rainfall, temperature, and evaporation. These engaged in service provision. However, in a context
factors create the need to store water over time and of poor regulatory capacity at the federal and state
provide a bridge during dry periods. Although total levels, a plethora of actors compromises the efficient
rainfall volumes may remain the same, or even slightly use of available resources and financing. Private
increase (World Bank and FAO 2018), the variability is operators play a critical role in providing services,
expected to increase. Heavier rainfall is predicted to including through loosely defined public-private
lead to increased flooding, particularly in the Jubba and partnerships (PPPs) between the Federal Member
Shabelle basins (Peterson and Gadain 2012; Tierney State (FMS) ministries and private providers. However,
and others 2015). In addition, droughts are also likely to the limited oversight and monitoring capacity of the
become more frequent due to higher rainfall variability Ministries of Energy and Water Resources (MoEWR) of
(World Bank and FAO 2018). the FMS often preclude the public dimension of such
partnerships. These constraints of fragmentation and
Water-related shocks resulting from droughts and limited regulation in turn contribute to high water
floods have had severe humanitarian consequences. prices across Somalia.
In rural areas, weather-related shocks can damage
livestock and crop production. For example, the 2016/17 There have been advancements in the
drought had severe consequences for the Somali water sector strategy. However, governance
population, contributing to economic hardship and arrangements are currently poor, and there are
worsening poverty. Variability and environmental shocks widespread gender disparities. In July 2021, the
in Somalia manifest themselves through the movement, Federal Government of Somalia (FGS) published
migration, and displacement of people, both as nomadic the National Water Resources Strategy (NWRS),
pastoralists and as IDPs. Shocks to the rural economy which identifies opportunities to use water for
push people into peri-urban pockets of poverty, as well socioeconomic development, as well as an entry
as IDP settlements. This leaves the potential of rural point to peace building. Managing Somalia’s water
agricultural areas unrealized. It also removes critical resources requires a strategic national approach that
opportunities for rural economic development and job involves the engagement of key government actors,
creation emanating from the agriculture and livestock the private sector, civil society, as well as the support
sectors. Health impacts for rural households are also of a range of international development partners.
significant due to the number of people with unimproved Although the NWRS sets laudable goals, a priority is
services. Indeed, an estimated 2 million people, or 22 to address the lack of regulation and management
percent of the rural population, currently rely on water of water service provision in municipalities because
from unimproved sources. there is no demarcation of responsibilities between
national, state, district, and/or municipal authorities.
4. Despite the critical importance of water, the sector Currently, there are no standardized processes for
is characterized by low levels of investment and poor approving the construction and operation of water
governance arrangements, thus compromising the resources across the FMS. Furthermore, women and
efficiency of available resources. minority social groups have low levels of participation
in leadership and decision-making processes, thus
The water sector receives limited financial support, rarely playing a role in in defining water policies,
which is also fragmented and uncoordinated. The programs, and laws.
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D. HOW SOMALIA CAN MAKE PROGRESS The NWRS provides a suite of strategies, objectives,
and actions for the water sector for 2021–2025,
1. Allocate water resources productively in rural and although some of the expected outcomes will only be
urban areas. realized in the longer term. One of the key provisions
of the NWRS is an excellent roadmap for collecting data,
Water resources are sufficient, provided they are which are currently unavailable in Somalia. However,
allocated productively; in the rural areas, the focus such data would be critical to inform investments and
should be on reinventing the riverine breadbasket policies. The NWRS extends to 2025, and the next
through farmer-led irrigation. Much of the recent three years can be used to deepen data collection and
discussions has revolved around the demise of the Jubba analysis to inform the next NWRS for 2026 -2030. There
and Shabelle Riverine areas irrigation infrastructure, is an urgent need to establish an institutional framework
which in years gone by provided the water for Somalia’s for water sector governance in line with the National
agricultural hub. Multiple reports and strategies discuss Water Resources Strategy. It would set out the roles,
the need to rehabilitate the aged and dilapidated responsibilities, and mandates of public sector actors.
infrastructure. Although the rehabilitation of existing Furthermore, coordination between the MoEWR and
infrastructure is viable in the long term, this Note the National Disaster Risk Management actors needs
proposes that the quicker and cheaper method of to be strengthened to improve flood and drought risk
farmer-led irrigation development should be embraced management measures.
in the short- to medium-term. Where water sources
are available nearby, farmer-led irrigation costs one- A clear urban service delivery model needs to be
fourth as much, on average, as traditional irrigation. defined. Before any sustainable, large investment
Furthermore, it is far easier to implement. infrastructure is undertaken, a policy intervention is
needed to define a clear urban service delivery model by
In urban areas, there is a need to address water the government. In this regard, the financing of large-
scarcity, which is expected in the Banadir region and scale urban water supply and sanitation infrastructure is
in about 30 to 40 towns. Plans should also be made for contingent on the development of a service delivery model
more strategic investments that consider appropriate for urban water and sanitation supply. Further analysis is
governance arrangements. By 2030, the Banadir region needed to determine the current roles of emerging water
around Mogadishu is projected to experience water utilities in providing services for the rapidly growing urban
scarcity due to high urban demand and low production. population. More information also needs to be gathered
Water shortages are also expected in certain districts or in about water service delivery for human consumption in
places with highly concentrated demand, such as towns, cities and towns, as well as for commercial and industrial
especially during droughts. Boreholes are important users. Critical to this effort will be developing a deeper
for Somalia’s drinking water supplies. However, high- understanding of the challenges involved in large-scale
yielding boreholes are not abundant. This should be extraction and storage to facilitate the preparation of
considered in relation to urban development. It calls for urban investment in water supply.
diversification of water supply sources in some localities,
including mixed source supplies, such as combinations 3. Commit to targeted, well-integrated investments
of groundwater and desalinated water. that generate high returns.
2. Realizing the water sector’s potential for growth Investments in the water sector have high returns.
will require investing in data collection and attaining An analysis of recent rural water sector projects in
a deeper understanding of how governance Somalia indicates that an investment of US$ 1 million in
arrangements can be improved in urban areas. rural water infrastructure and livelihood development
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activities can generate an estimated discounted return for external funding remains essential. It is recommended
of US$5.85 million under baseline assumptions.¹⁵³ that all investments into infrastructure fully integrate
This note concludes with a broad suite of potential components related to building institutional and technical
investments for the short- and medium-terms for rural, capacity in the water sector.
peri-urban, and urban areas. Such an investment would
strengthen resilience at the local levels and transform This Note outlines a broad suite of potential
livelihoods and the economy. It would also enhance investments for the short- and medium-terms for
the availability of data, information, and knowledge rural, peri-urban, and urban areas. Such investments
about water, including its links to the socioeconomic would strengthen resilience at the local levels and
development of Somalia. transform livelihoods and the economy. In addition,
they would enhance the availability of data, information,
The advantages and disadvantages of the main and knowledge about water, as well as its links to the
technologies used for water supply should be used to socioeconomic development for Somalia.
inform future investment choices. A cost-effectiveness
analysis, available in the Economics of Water (full synthesis SHORT-AND MEDIUM-TERM WATER
report), shows the relative contribution of each water SECTOR PROJECTS
supply option to bridge the water gap. As such, it suggests
some criteria for the prioritization of investments. Tables 2 and 3 provide a list of investment priorities
based on the analysis undertaken by the Economics
Reliance on external sources of funding will of Water study. The priorities correspond to the short
continue to be important. Although domestic revenue term (0–2 years) and medium term (0–5 years). The
mobilization and poor macroeconomic challenges persist, priorities are disaggregated by rural, peri-urban, and
the reduced national water sector spending will continue urban areas. In addition, the alignment with the particular
to be a barrier to better service delivery. Thus, the need NWRS flagship projects are noted.
Table 2. List of Investment Priorities: Short Term (0–2 Years)
Suggested Formulation Timeframe Focus Alignment with NWRS
Flagship Project #
Strengthen resilience at the local level
Investment in new, small water systems/expansion, including Short Rural 3, 7, 8, 10, 12
innovations (for example, sand dams) coupled with appropriate
governance and management arrangements.
Build a network of emergency wells in vulnerable localities. Short Rural 8
Provide technical assistance/co-funding for soil and water Short Rural 8, 7, 10
conservation techniques in selected areas.
Provide technical assistance/co-funding for private and community Short Rural 4,
investments in water.
Strengthen local community capacity through the rehabilitation Short Rural 3, 7, 12
of watering facilities, with support for the reestablishment and
strengthening of nomadic communities’ organizations, including
conflict adjudication.
¹⁵³ “Somalia Water for Agro-Pastoral Productivity and Resilience Project. Economic Analysis.”
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Suggested Formulation Timeframe Focus Alignment with NWRS
Flagship Project #
Improve data, information, and knowledge
Conduct river flow assessments, based on a combination of past Short All 6, 7, 9, 11
data and hydrological modeling utilizing remote sensing data
(including upstream basin sections in Ethiopia).
Conduct research studies/further diagnostics on: Short All 5, 7, 8, 9, 10, 12
• Delivery models, sources, and access for select urban areas
as the basis of taking decisions about future service delivery.
• Boost year-round, affordable good quality livestock feed.
• Determine how to best support the promotion of water
and soil conservation, as well as water harvesting
methods in drylands.
• Determine how to support integrated land and water
management practices, including soil conservation and
flood management.
• Adopt viable flood mitigation and drought resilience
measures, including forest stewardship.
• Adopt climate-resilient water and sanitation technologies, as
well as management techniques.
These studies should be embedded in, and undertaken as part of,
investment operations.
Conduct economic studies concerning water sector uses (mostly for Short All 7, 9, 10, 12
water supply and sanitation [WSS], livestock, and agriculture). Also,
undertake studies concerning new trends in energy conversion and
incipient industrial development.
Assess the potential use of economic incentives for sustainable Short All 5, 9
water management (mainly pricing mechanisms, risk management
schemes, and cooperation-based instruments).
Undertake an in-depth diagnostic of the existing water supply and Short Urban 7, 9
sanitation facilities in capital and secondary cities. The focus should
be on clearly defined sources of water, including how to collect,
store, and deliver water.
Urban Investment plans (1): Short Urban 3, 7, 9
Deepen the analysis of the 23 most distressed towns in terms of
water resources to determine growth potential of, and inequalities
in, such towns. Also, define key urban water infrastructure
investment priorities.
Urban Investment plans (2): Short Urban 3, 7, 9
Prepare secondary city summary investment plans for Galmudug,
South West State, Hirshabelle, and Jubbaland.
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Table 3. List of Potential Investments for the Medium Term (2–5 Years)
Suggested Formulation Timeframe Focus Alignment with NWRS
Flagship Project #
Strengthen resilience at the local level
Develop perennial livestock feed crops that utilize ‘green Medium Rural 7, 12
water’. However, at certain times, have blue river water added
(supplemental irrigation). This would form the basis for high-
quality livestock exports (that is, well-fed, healthy livestock,
selling at good prices).
Introduce consultative, participatory approaches whereby water Medium Rural 7, 12
access helps livestock stakeholders through participatory rangeland
management. It would also improve environmental stewardship of
rangelands, including their adaptation to the impacts of increasingly
threatening climate change.
Transforming livelihoods and the economy
Introduce large-scale manual well drilling (training, local equipment Medium All 5, 9
production, and private sector development).
Promote farmer-led irrigation development. Medium Rural 10
Provide large volumes of water to enable the gradual commercialization Medium Rural, Peri-urban 7, 10
of Jubba and Shabelle (river flow dependent) agriculture, specifically
from low-value crops and to higher-value crops.
Pilot locally based natural resource management and water Medium Rural 8, 10, 11
resources management, including soil rehabilitation.
Connect the urban and rural provision of water for households. Medium Rural 7, 9
This may entail interventions and deeper assessments according to
the optimal scale for the provision of these services by specialized
water utilities or other operators (in cooperation with community-
based systems).
Connect water supply and wastewater treatment, thus maximizing Medium Rural 9
the potential for reclaiming and reusing water.
In coastal towns, pilot the mixed-source water provision through Medium Urban 9
complementing fresh groundwater with desalination, such as
reverse osmosis options.
Improve data, information and knowledge
Deepen transboundary basin knowledge and understanding: Medium Rural 2, 3, 5, 6
• Establish a basis for transboundary basin management.
• Undertake a situation assessment and basin development
scenario studies in the Jubba and Shabelle basins.
• Undertake a situation assessment and study of basin
development scenarios in transboundary aquifers.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Suggested Formulation Timeframe Focus Alignment with NWRS
Flagship Project #
• Develop principles and a policy for transboundary
cooperation and basin management.
• Promote trust-building activities in transboundary basin
management across the region.
A policy intervention is needed to define a clear government urban Medium Urban 9
service delivery model.
Urban Investment Plans (3):
Develop an overarching Urban Water Sector Investment Plan. Medium Urban 4, 9
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DISASTER RISK MANAGEMENT
AND RESILIENCE POLICY NOTE
A. SUMMARY OF KEY MESSAGES term approach. The current machinery of government
in the DRM space is underdeveloped, incapacitated,
Somalia is in the grip of a climate - and now public under-resourced, overly projectized — and far too heavily
health - emergency, compounded by prolonged dependent on external support. Inter-governmental and
armed conflict and economic and institutional intra-governmental coordination is also a challenge.
weaknesses that exacerbate the country’s Although the Federal Government of Somalia (FGS) policy
vulnerability. This Note considers the context and recent framework has been developed, many Federal Member
developments and sets out key issues for the future. In States (FMS) have no policy framework or investment
addition, it offers some ways forward for consideration plan. Furthermore, they lack structures charged with
by the new authorities. While security, humanitarian policy execution. Finally, several key government bodies
and development challenges are interlinked — and envisioned to provide policy oversight within the 2017
the responses to them must be integrated — this Note National Disaster Management Policy (NDMP) have yet
focuses mainly on readiness aspects. to be formally established.
B. SUMMARY KEY ACTIONS Somalia lacks a nationally owned and managed
emergency alert and early warning system (Table 2).
Key issues and priority options are centered around Currently, early warnings are produced by the Food and
three broad themes: (i) Policy frameworks and institutional Agriculture Organization (FAO) Somalia Water and Land
structures for disaster preparedness and response (Table Information Monitoring (SWALIM), the Food Security
1), (ii) Emergency alert and early warning systems, and and Nutrition Analysis Unit (FSNAU), and the Famine
(iii) Disaster risk financing mechanisms. Specific priority and Early Warning Systems Network (FEWS NET). The
options include the following: (i) establishing a joint DRM seasonal climate outlook information is provided by the
legal and institutional framework to enhance coordination Inter-Governmental Authority on Development Climate
and service delivery; (ii) developing a national emergency Prediction and Application Center. Although progress
operations and preparedness center to support integrated has been made to strengthen hydromet and early
crisis management; (iii) enhancing government capacity warning services over the past decade, these services
and coordination for hydrometeorological and early are still fragmented and not integrated into government
warning services; and (iv) promoting new financing institutions. Thus, Somalia still lacks a nationally unified
facilities for crisis response. and coordinated hydromet service. In addition, the
limited capacity of the government in translating and
C. WHERE SOMALIA STANDS NOW disseminating hydromet information is inhibiting user
access and uptake of early warning information, and
Somalia’s disaster management and coordination thus rarely results in mitigative actions. Also, there is
capability are limited and reactive in nature. The no coherent policy encompassing hydromet and early
government typically deals with crises on an ad hoc and warning services, which hampers the streamlining of
singular basis, rather than a comprehensive and long- efforts to strengthen these services.
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Disaster risk financing mechanisms: As Somalia and both the ex-ante and ex-post DRM financing
normalizes relations with the international instruments lack development.
community after reaching the Heavily Indebted Poor
Countries (HIPC) Initiative Decision Point in March D. HOW SOMALIA CAN ACHIEVE PROGRESS
2020, the country will now have greater access
to development financing. The desire to focus on Building disaster prevention and preparedness
preventive investments has been outlined in the capacities will greatly help to reduce future
NDMP. However, there has been no exploration of the humanitarian spending. Somalia’s history has been
potential for introducing new modalities of ex-ante one of cyclical, short-term humanitarian responses, as
financing, including risk management or transfer. well as a failure to invest in more durable solutions and
Therefore, overall risk financing mechanisms in the essential infrastructure. Supporting the establishment
country are largely ex-post in nature. In fact, there of preventive and preparedness systems will lower
has been a mostly reactive approach in dealing with the loss of human lives, and reduce the costs of
any emergency and/or disaster situation. There humanitarian delivery in the long term. In addition, it
is also an absence of an apex resourcing facility, will strengthen the impact of the development nexus.
Table 1: Policy Frameworks and Institutional Structures for Disaster Preparedness and Response
Key Issue Recommendations Responsibility
Fragmented and Immediate steps • Assess the DRM legal and institutional Lead: Prime Minister and National Disaster
overlapping roles and framework for Somalia, including the Management Council (NDMC) are at the
mandates in DRM, clarification of mandates across stakeholders. center of the DRM system, supported
as well as a lack of by the Somalia Disaster Management
operationalization of • Develop a DRM framework covering the Coordination Group (SDMCG), and the
legislated institutional delivery supply chain across government. Ministry of Humanitarian Affairs and Disaster
structures. Management (MoHADM).
• Develop a joint DRM Investment Plan and/or
Resource Mobilization Strategy, with particular With: FMS.
attention paid to the National Emergency
Operations Center (NEOC) as the coordinator
of emergency preparedness and response
Short-term • Help to develop the existing NEOC through a Lead: Prime Minister and National Disaster
joint investment plan based on an emergency Management Council (NDMC) are at the
preparedness and response assessment. center of the DRM system, supported by the
Somalia Disaster Management Coordination
Group (SDMCG), and the MoHADM.
With: FMS.
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PILLAR 2: CONNECTING WORKERS TO JOBS AND SUPPORTING RESILIENCE - DISASTER RISK MANAGEMENT AND RESILIENCE POLICY NOTE
Table 2: Emergency Alert and Early Warning Systems
Key Issue Recommendations Responsibility
The country lacks a Immediate steps • Assess, formulate, and implement a capacity Lead: The Ministry of Energy and Water
nationally owned and development program to support the provision Resources (MEWR) and Ministry of
managed emergency alert of hydromet services. including flood hazard Agriculture.
and early warning system mapping, hydrological forecasting, and flood
warning. Also, support training on the use of With: User Departments and donors such
regional / international meteorological products as the FAO, World Food Programme (WFP),
(in partnerships with the Intergovernmental and so on.
Authority on Development (IGAD) Climate
Prediction and Application Centre (ICPAC)
and other regional and global partners, such
as the Somalia Water and Land Information
Management [SWALIM]).
• Agreement concerning an institutional
assessment and investment plan to facilitate
the transition from donor-led data/analysis
structures to a government-owned model, as
well as a commitment to provide adequate
capacity and resources.
Short-term • Implement steps to establish the National Lead: The Ministry of Energy and Water
Meteorological and Hydrological Services Resources.
initially through a department / unit at MEWR.
With: Ministry of Agriculture and user
departments.
Disaster Risk Financing Mechanisms
Key Issue Recommendations Responsibility
Disaster risk financing is Immediate steps • Undertake a Fiscal Disaster Risk Assessment154 Lead: NDMC/Office of the Prime Minister
ex-post in nature, leading to determine the fiscal impacts of disasters (OPM), MoHADM and Ministry of Finance
to a reactive approach on an annual basis and project maximum (MoF).
in dealing with any probable losses.
emergency and disaster With: FMS.
situations, as well as • Establish a Maximizing Finance for Development
negative coping strategies. Working Group with key representatives from
the private sector, the Somali diaspora, the
Gulf States, China, and Turkey, among other
key regional partners. Begin a dialogue with
the objective of conducting an assessment
and design for the possible development of a
Contingency DRM fund.
Short-term • Formulate a Disaster Risk Financing Strategy
for the country (specifically, what to protect Lead: NDMC/OPM, MoHADM and MoF.
and how to protect it using a combination
of government allocations and risk transfer With: FMS.
mechanisms/private sector, insurance,
Catastrophe Bonds [Catbonds], and so on).
¹⁵⁴ An assessment of the economic and fiscal risks related to natural disasters, including contingent liabilities and government expenditure, to
inform disaster risk financing strategies.
110
TOWARDS THE FUTURE
DRIVERS OF GROWTH
- LEVERAGING URBANIZATION, UPGRADING AND DIVERSIFICATION
URBANIZATION POLICY NOTE
A. SUMMARY OF KEY MESSAGES from initiating urban upgrading programs,
such as enhancing public utilities, rehabilitating
Somalia is rapidly urbanizing, with an estimated 54 infrastructure, as well as the construction of new
percent of the population currently living in cities. housing. Rapidly rising urban property values
Close to 75 percent of Somalia’s 2.6 million internally have exacerbated land grabbing and speculation,
displaced persons (IDPs) are estimated to be living in increased forced evictions, and forcing poor migrants
cities. If managed well, urbanization can help Somalia and the displaced to move to poorly serviced city
to develop more quickly and fully. Global evidence peripheries. This has in turn led to uncontrolled urban
shows that, on average, for every 1 percent increase in sprawl and increased poverty.
urbanization, gross domestic product (GDP) per capita
grows by 4 percent. However, if Somalia fails to meet • High joblessness, especially among youth.
the needs of its growing urban population, its modest Job creation in cities depends on nurturing private
successes and wider stability could be undermined. sector growth. However, the growth is hampered
by a number of factors, including insecurity; an
KEY ISSUES PERTAINING TO RAPID infrastructure gap; a lack of skilled labor; the lack of a
URBANIZATION INCLUDE THE FOLLOWING: regulatory framework; rampant corruption; a lack of
access to land and finance; and a clan-based network
• Contested, fragmented and ineffective urban that limits access to broad, merit-based skilled labor.
governance. Federal and State-level ministries As a result, only 40 percent of youth participate in the
often have mandates that overlap with those of labor force.
the districts, particularly in insecure areas where
government control is limited to cities and their B. SUMMARY OF KEY ACTIONS
peripheries. This poses a significant challenge
because the overlapping remits of the three tiers of 1. Governance: Clearly demarcate the responsibilities
government result in contestation over political and between the national, state, district and municipal
economic authority. District governments also face authorities, including financing arrangements.
severe resource and capacity constraints.
2. Service delivery: Establish a sound regulatory
• Poor and unequal service delivery outcomes environment for third-party service delivery by
and lack of regulation. In the absence of public taking stock of current rules governing the private
service delivery, non-state actors have come to sector. Also, consider ways in which they can be
exert considerable influence over the provision and incrementally improved. Consult with providers
regulation of public services. Donors also fill gaps to ensure their buy-in. Also, train communities in
in major cities. However, the lack of regulations has learning about their rights as consumers.
resulted in high variations in price and quality, thereby
blocking the poor from affordable quality services. 3. Land: Strengthen the tenure security of IDPs/
informal settlers by (semi) formalizing currently
• Unclear land titles exacerbate poverty. A lack informal settlements. Curb illegal land grabbing by
of clarity over land rights can prevent governments non-state actors. This could be done by establishing
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
a mechanism to legally expropriate land in the As formal government capacity at the local, regional,
public interest and provide fair compensation to the and national levels has been weak and poorly funded,
affected persons. the private sector has stepped in to provide services,
as well as other public goods, such as security, that
4. Jobs: Nurture the informal economy by articulating are normally viewed as the responsibility of the
the minimum regulatory standards for informal State. However, the de facto privatization of security,
businesses. Invest in human capital through improved utilities, education, health care, and other public goods
education and vocational training. Invest in the major and services carries real costs, including inequitable
corridors, ports, and improve access to electricity to access for the poor, as well as uneven coverage, and a lack
foster private sector growth. of regulation.
C. SOMALIA’S URBANIZATION In the short term, Somalia’s third-party service
delivery model is and will remain the most active
Somalia is rapidly urbanizing. Most of urban growth and responsive source of basic services and public
to date has been fueled by rural-urban migration. goods in urban centers. However, effective and
Drought, poverty, and insecurity have driven this appropriate levels of government regulation are the
migration. However, pull factors matter as well. Indeed, key to ensuring that this outsourcing of service delivery
many rural migrants are attracted by the prospect of to the private sector is responsible and fair. The Somali
better access to services and employment. Somalia is diaspora — which now features a large cohort of Somalis
currently more urbanized than its neighbors. Although with impressive levels of education, professional
reliable population figures are lacking, Somalia is home training, and experience across a range of disciplines
to an estimated 15.9 million people, of whom 7.4 million, and sectors — could be an ongoing source of both
or 46 percent, are urban dwellers. This compares to an financing and expertise. Despite being scattered all over
estimated 28 percent in neighboring Kenya. Predictions the world, more than 1.5 million Somalis living in the
show that by 2030, Somalia will add another 3.8 million diaspora remain tightly woven into the fabric of Somali
residents to its urban areas, and another 11.6 million by urban life, both directly, as investors in business and real
2050, thus tripling its urban population over 30 years.¹⁵⁵ estate, and indirectly, as the source of the estimated
The dramatic increase in the populations of Somali cities US$2 billion a year in remittances that help fuel urban
in the next thirty years holds the promise of generating demand for services and consumer goods.
agglomeration economies by shortening the distance
in terms of services, infrastructure, and how far people For all their potential, Somali cities and their
must travel. residents and businesses are already coping with
daunting impediments and face mounting challenges
Somali cities today are the anchors of development. in the future. A number of these challenges involve
In the absence of the State, Somalis have constructed ad fractured, formal governmental institutions. Unresolved
hoc hybrid governance systems, involving a complex mix differences over the delegation of authority between
of traditional leaders, religious authorities, civic groups, the federal government, regional states, and district or
militia commanders, businesses, and local government municipal authorities, as well as the contested status of
authorities. These individuals and groups provide the Banadir Region, have led to chronic clashes between
variable levels of security, justice, conflict management, competing government offices and ministries. Even when
regulation, and norms – despite the fact that the potential the delegation of authority is resolved, the capacity to
volatility of such ad hoc arrangements caused Somalia’s execute the basic work of government — to enforce laws,
instability in the first place. regulate, and deliver basic public goods and services
¹⁵⁵ World Bank staff calculations are based on the UN-Habitat and CIA World Factbook. “Somali Poverty and Vulnerability Assessment.” (Washington,
D.C.: World Bank Group, 2019).
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TOWARDS THE FUTURE DRIVERS OF GROWTH - URBANIZATION POLICY NOTE
— is extremely limited. District authorities¹⁵⁶ tasked also need a better trained skilled labor force to fill new
with at least some authority to manage cities have only jobs. The formal employment sector must also expand
modest means to raise tax revenues, and face resistance opportunities for women, who are currently under-
to payment of taxes because they are seen as providing represented in the formal economy and who instead
little or no service to the public. Low legitimacy, revenues, dominate the informal economy.
capacity, and output all reinforces one another and trap
many district authorities in a cycle of poor governance. Finally, Somali cities face major challenges
of sustainability — both environmentally and
One of the biggest challenges facing Somali cities is economically. The very weak regulation of the private
the large IDP populations they host. The IDPs pose sector’s role in providing private security, education,
two challenges. The first is the expansion of the size and health care, power, water, and other services has
number of IDP “camps” where the displaced settle. These created significant risks to urban customers. The first
are sometimes located near the center of towns. However, sustainability crisis is environmental, and it is already
with rapidly rising real estate values, many of the IDPs in being felt from Kismayo to Hargeisa. The rapid
these camps have been forcibly displaced to new IDP increase in urban demand for water is straining some
camps at the edge of cities, far from basic services and potable water sources and delivery systems, and the
adequate public transport. The second is the question of dual increases in urban population and growing wealth
identity and citizenship rights of the IDPs in these cities. will place added demands on water supplies. The
Somali urban migrants are typically designated as IDPs second sustainability challenge is economic. Somali
when they are poor and from another region. The term cities consume far more than they produce. In this
carries additional weight as a result: It implies that IDPs context, the economy is fueled by the sizable flow of
are guests, with limited rights, and are presumably in the remittances from abroad each year. The long-term
camps temporarily until they can return to their “home” forecast for remittances from the diaspora is unknown.
region. The reality is that most internal displacement However, concerns have been raised that as the first-
is permanent, and IDPs require full citizenship rights generation of the Somali diaspora ages, their children
regardless of their clan or region or origin. Thus, the will be less enthused about remitting money to distant
presence of IDPs raises a fundamental question about relatives. If that were to occur, Somali urbanites would
who is entitled to live in Somali cities. gradually see their purchasing power decline.
As migrants continue to flock to Somali cities, the D. SUMMARY OF KEY RECOMMENDATIONS
challenge of generating new jobs will remain a top
priority. Unemployment in Somali cities is already high Urban centers are Somalia’s most powerful and
and will likely get worse unless the right combination of promising anchors of future socioeconomic
public policies and investments are pursued. Given the development. National development strategies and
Somali State’s modest budgets, the private sector will international development assistance must focus on
continue to be the main source of job creation in the near- creating enabling environments for Somali cities to
to medium-term. The private sector will need more than reach their maximum potential as drivers of sustainable
just an enabling environment to expand; indeed, it will and inclusive growth, providing citizens with diverse
¹⁵⁶ The Provisional Constitution of the Federal Republic of Somalia (2012) stipulates that Somalia adopt a federal system where power is shared
between the Federal Government of Somalia (FGS), the Federal Member States (FMS), and the local governments. The provisional Constitution
provides tacit recognition of local governments (districts) in Article 48, bolstered by the subsequent 2015 Wadajir Framework, as well as a 2018
FGS law that provides guidance for the FMS concerning the creation of local governments. The Constitution leaves it up to the FMS to provide for
local government in their own Constitutions (or Charters). As such, they can enact their own specific legislation on local government. The Wadajir
framework further commits the FMS to establish district governments. The Framework makes it clear that district governments are expected to
be representative bodies, enabling local communities to self-govern to a degree, and to hold their local governments to account. However, except
for Somaliland and Puntland, which have elected district commissioners and district councils, no other southern states have managed to hold local
elections. The District Commissioners, who head the district government, are therefore interim district commissioners who are appointed by the
FMS Presidents.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
economic opportunities, boosting innovation, and support of stable and accountable governance. Some
enhancing access to quality public services — all with the high priority recommendations are listed in Tables 1-4.
Table 1: Urban Governance Recommendations
Key Issue Recommendations Responsibility
Contested, fragmented, Immediate steps • Clearly demarcate responsibilities between Lead: FGS Ministry of Finance (MoF) and
and ineffective the national, state, and district or municipal Ministry of Interior and Federal Affairs
municipal governance authorities, including financing arrangements. (MoIFA)
With: District governments and the
international community.
Short-term • Develop strategies to set the ground rules for Lead: FGS MoF and MoIFA
partnering with hybrid political systems.
With: District governments and the
• Strengthen the credibility of district international community.
governments by outsourcing limited key
services that are strictly public in nature
(for example, road construction, flood
management) using inter-governmental
fiscal transfers rather than raising taxes —
provided a predictable source of financing can
be identified.
• Boost the basic administrative skills of
district governments in budget management,
planning, monitoring, and supervision.
Table 2: Service Delivery Recommendations
Key Issue Recommendations Responsibility
Poor and unequal service Immediate steps • Focus on third-party service delivery as an Lead: District governments
delivery outcomes and a opportunity for Somali cities to leapfrog
lack of regulations. over a state-led service delivery system With: Communities, service providers, and
that require expensive infrastructure and the international community.
Lack of effective significant capacity building. This can be
arrangements between done by taking stock of existing practices,
public and private actors. learning what works and building on this
incrementally. Establish a sound regulatory
environment for third-party service delivery
based on current rules governing the private
sector. Focus on incremental improvement to
better manage prices and quality.
Short-term • Focus on delivering the public services that
the private sector will not spontaneously
invest in. These services include solid
waste management, road construction/
maintenance, flood management, and vital
record registration (for example, birth
certificates).
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TOWARDS THE FUTURE DRIVERS OF GROWTH - URBANIZATION POLICY NOTE
Table 3: Land Management Recommendations
Key Issue Recommendations Responsibility
Unclear land titles lead to Immediate steps • Secure the status of IDPs by (semi-) Lead: FMS Land Commission, Ministry of
land grabbing, urban land formalizing currently informal settlements. Public Works (MoPW), Ministry of Planning,
speculation, and unplanned Solutions will be case-dependent, but could Investment, and Economic Development
and poorly served peri- include formalization of occupancy, rental (MoPIED) Durable Solutions Unit, and district
urban areas, thereby assistance, home improvement grants, government durable solutions units.
exacerbating? poverty. communal leases, and private-sector-led
social housing development. With: Non-state actors and the
international community.
Short-term • Curb illegal land grabbing by non-state Lead: FMS Land Commission, MoPW,
actors. This can do done by establishing a MoPIED, Durable solutions units.
mechanism to legally expropriate land in the
public interest and provide fair compensation With: Non-state actors and the
to affected persons. international community.
• Introduce protections against speculative
practices, for example, by reclaiming
allocated land if it not developed within
a certain timeframe, or by heavily taxing
speculation.
Table 4: Economic Development
Key Issue Recommendations Responsibility
High joblessness, Immediate steps • Avoid over-regulating the informal economy, Lead: FMS MoPIED, Ministry of Commerce
especially among youth which could undermine critical sources of and Industries (MoCI), and the Ministry of
income for the poor. Labor and Social Affairs (MoLSA).
• Articulate the minimum regulatory standards With: District governments, the private
for informal businesses, such as ensuring sector, civil society organizations (CSOs),
that pharmacies only sell authorized drugs, and the international community
while investing in infrastructure that
protects their access to customers, such as
installing hygienic vending stations in public
bus terminals.
• Generate jobs to address the post-COVID-19
economic downturn by leveraging construction
projects, which employ individuals with
limited skills and simultaneously improve the
business environment.
Short-term • Work with the private sector to design policies Lead: FMS MoPIED, MoCI, and MoLSA
to generate more employment opportunities
in the areas of hospitality, construction, and With: District governments, private sector,
agricultural value chains. Make significant CSOs, and the international community
investments in vocational training and
education, which would be developed in
collaboration with the private sector. This
would help to ensure that Somali jobseekers
have the requisite skills to fill them.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
Key Issue Recommendations Responsibility
• Improve the business environment
through incremental reforms, specifically
those pertaining to security, access to
finance, sector regulation, and financial
intermediation.
• Rehabilitate and expand core infrastructure,
such as key trade corridors, ports, and energy,
to improve access to markets.
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CROP, AGRICULTURE AND
LIVESTOCK POLICY NOTE
• Improve water for rural livelihoods through the
A. SUMMARY OF KEY MESSAGES
introduction of farmer-led irrigation in Jubba and
Shabelle riverine areas, while investing in conjunction
The agriculture sector is critical for livelihoods and
towards improving flood control infrastructure.
export earnings. Indeed, it is central to the country’s
food security, especially for the rural population.
• Enhance productivity and value addition through
However, the sector is highly vulnerable to climate
protection against communicable diseases, facilitating
change and natural disasters, as demonstrated by
the feed and fodder trade, as well as the adoption of
frequent cycles of floods and droughts, which affect crop
digital agricultural technologies.
production and the livestock herd population. As more
erratic and extreme rainfall patterns can be expected in
• Improve access to markets by improving quality
Somalia and the wider region, investing in the long-term
infrastructure, participating in trade agreements and
resilience of production systems will be critical. Other
promoting commercial food production, including
challenges limiting the growth of the sector include:
the development of value chains in the agro-
the gradual degradation of irrigation infrastructure over
processing and livestock sectors.
the prolonged civil war period; weak institutions for
agricultural service delivery; and persistent insecurity.
• Improve access to finance in the livestock sector
Nevertheless, there are numerous opportunities for
with a menu of products, including risk transfer
raising agricultural productivity. Cultivation and livestock
instruments such as drought insurance, savings,
rearing can be expanded. Areas with fertile alluvial soils,
credit, and so on.
especially in the southern regions, are suitable for staple
cereals, oil seeds, legumes, and horticulture crops. Large
Medium- to long-term actions focused on institution
rangeland areas across the country are suitable for
building and attracting investment:
grazing and fodder production for livestock. Realizing
opportunities for agricultural expansion would require the
• Comprehensive water management that
adoption of climate-smart practices; improving water for
combines improvements in irrigation and flood
rural livelihoods; enhancing productivity; addressing gaps
control infrastructure, with enhanced soil and water
in infrastructure and services; and improving access to
conservation in rainfed areas.
markets and finance.
• Build stronger institutions for collective access
B. SUMMARY KEY ACTIONS
to inputs and services, community-based extension
systems, and digital agriculture services to support
SHORT- TO MEDIUM-TERM ACTIONS:
climate-smart practices and improved market linkages.
• Address vulnerabilities to climate change
• Unlock investments for input provisioning, animal
through the adoption of climate-smart agricultural
health services and breed improvement, and post-
(CSA) practices, including increasing the uptake
harvest handling including value addition, storage,
of new crop varieties, improving soil and water
and marketing.
management practices and diversifying crops.
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• Improve the overall enabling environment through access to markets and finance. These challenges are
increased security, improvements in roads and market elaborated below.
infrastructure, and policy incentives for agri-business.
Vulnerability to climate change. The country’s
• Encourage trade of agricultural products with agriculture and rural livelihoods depend on an increasingly
urban centers in Somalia, as well as with new trading narrow and fragile resource base (that is, water, pasture,
partners through enhanced trade facilitation and soils) and an arid and semi-arid climate that has become
market linkages. drier, more extreme, and more variable in recent decades.
Cyclical climate shocks are predicted to be frequent for
C. WHERE SOMALIA STANDS NOW: KEY the Horn of Africa region over the next few decades,
CHALLENGES FOR AGRICULTURE AND LIVESTOCK leading to higher temperatures, soil degradation, reduced
groundwater recharge, and less water availability in
The livestock and crop sub-sectors in Somalia are the surface layers, which is necessary for plant growth.
important sources of livelihoods, particularly in rural Other likely impacts include a reduction of vegetation for
areas. However, the performance of the crop sector grazing and more variable water availability, with grave
in the last decade has been weak, providing only about impacts on livestock herding and related livelihoods.
40–50 percent of per capita cereal needs — even though These climatic shocks pose a real risk to the crop and
the potential to recover to the pre-war level is high. livestock sub-sectors. For example, following the severe
Although the crop sector is important for food security, drought of 2016/17, there were estimated losses of US$2
its contribution to the economy has fallen because billion and a drastic drop in live animal exports in 2017 and
production is vulnerable to climatic shocks, pervasive 2018 after the Kingdom of Saudi Arabia and the United
insecurity, weak institutions, and negligible infrastructure. Arab Emirates imposed an import ban on health grounds.
Thus, Somalia remains dependent on imports for basic
food commodities. Deterioration of water infrastructure for rural
livelihoods. Irrigated farming systems that grow maize,
The livestock sector, by contrast, has shown sesame, other food crops, fruits, and vegetables, mostly
remarkable resilience. Somali exports of goats and along the Shabelle and Juba rivers, face many constraints.
sheep — mostly to the Gulf Cooperation Council (GCC) These include diminished surface water availability, poor
countries — typically accounts for 75 percent of total irrigation and flood control infrastructure, inefficient water
exports. Exports were previously largely destined to the use, increased salinization, and water logging. Water
Kingdom of Saudi Arabia, but they are now expanding to also continues to be a major source of conflict between
other trading partners within the GCC. There also seems nomadic pastoralists and agro-pastoralists. However, water
to be a growing trend for Somalia to export outside of the infrastructure to harness river water, extract groundwater,
religious festivals of Ramadhan and the Hajj. By late 2021, and harvest rainwater has severely deteriorated due to
exports of livestock were recovering and were at pre- a lack of regular maintenance and repairs, prolonged
pandemic levels, although the emerging drought in late insecurity, weak institutions, and the absence of effective
2021 / early 2022 may affect the livestock herd population. community organizations. The already insufficient prewar
Somalia’s proximity to GCC countries is advantageous, but road network is in extremely poor condition. As a result,
if improvements to sanitary and phytosanitary standards livestock survival during severe droughts has become
are not made, there is a continuing possibility of trading dependent on very costly and often unaffordable, privately-
partners imposing import bans. owned water trucking services.
A shared vision of the Federal Government and Weak agriculture innovation system. Annual staple crop
Federal Member States of enhancing the crop yields for maize and sorghum in Somalia are low, with a
and livestock subsectors remains unfulfilled due long-term average of 0.5 tons and 0.3 tons per hectare,
to climatic shocks, inadequate water for rural respectively. These low yields reflect poor access to good-
livelihoods, weak agricultural innovation systems, quality inputs, inappropriate farming techniques, and
gaps in infrastructure and services, and poor widespread use of low-yielding varieties, which generally
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result from the absence of a strong Agriculture Innovation widespread insecurity in pastoral areas), trade in
System capable of providing the required research and livestock is based on networks such as clans and family
extension services. Although average yields for both ties. Pastoral producers are not well integrated as they
irrigated and rainfed crops are currently very low, if the operate in remote regions and are often on the move.
constraints were fully addressed, expert consensus is that Beyond the number of intermediaries, many reasons
average yields could increase by a factor of four to six for explain the limited value derived by producers selling live
maize and three for sorghum. The widespread adoption animals, including: (i) a lack of quality infrastructure to
of climate-smart agricultural practices, including the use trace livestock and ensure standards; (ii) limited resources
of better-quality seeds, would increase both the resilience for disease control; (iii) transport systems (trucking or
and growth for key rainfed crops. In this context, the trekking) that stress animals and lower their weights, and
yields and total area under cultivation could be doubled or thus the price fetched at livestock markets; and (iv) a lack
even tripled (World Bank-FAO 2018). Regarding livestock, of access to market information.
fodder quality and availability continue to be a challenge,
thus limiting the yield potential. During droughts and long Lack of access to finance. An inadequate formal banking
dry seasons, pastoralists tend to sell livestock when prices system and limited access to credit are challenges in the
are lowest and when feed is short and demand for cash to Somalian crop and livestock sub-sectors. Farmers and
buy food is higher. This results in herders receiving lower pastoralists have limited access to formal credit due to the
prices than if they had sold after the rains when prices lack of collateral, a lack of identification, and difficulty in
would have been better. Predominant feed production following loan defaulters. Some farmers and small traders
systems still rely mostly on fresh grasses and shrubs in rely on a range of different informal financial institutions
the country’s vast rangelands, and on their straw, which to support their businesses. Financial institutions are
is of low nutritional value. Additionally, there are critical located far from rural farming communities and livestock
service gaps in addressing the risk of animal diseases and markets. Microfinance institutions (MFIs), Savings
consequent import bans. and Credit Cooperative Organizations (SACCOs), and
mobile and agent banking operate in the pastoral
Gaps in enabling ecosystem and services. Infrastructure areas of Somalia. Pastoralists participate in Village
and security continue to be major concerns in unlocking Savings and Lending Associations (VSLAs) to mobilize
the potential of the crop and livestock sub-sectors. their savings. The irregular sale patterns — due to
Continuing insecurity and weak institutions are key cultural issues and exposure to drought — are a limit
contributing factors to the consequent sharp deterioration to creditworthiness. Pastoral land is communal and
of flood control, irrigation, and transport infrastructure in cannot be charged as collateral.
the south-central regions. These factors have also limited
private investment in key value chains where new actors D. HOW SOMALIA CAN MAKE PROGRESS
can potentially emerge to provide productivity-enhancing
inputs, equipment, and support services. There is also a Improving agricultural transformation can support
significant institutional gap at the community level with a enhanced livelihoods and food security. As Somalia
dearth of strong farmer institutions that could otherwise is rapidly urbanizing, improved agricultural production
enable efficiencies in input sourcing and collective access could also help to serve urban markets. Regarding the
to enabling services. Digital agriculture technologies are crops subsector, the main, medium-term objectives
also in the nascent stages in Somalia, thereby presenting should be recovery of production to recent pre-flood and
a major opportunity for harnessing technologies to build pre-drought levels, as well as resilience building to such
more remunerative and resilient value chains. future climate shocks. In the long-term, the development
objective would revolve around ensuring a return to
Pastoral producers poorly integrated in markets. Due production to pre-war levels, especially the main
to uncertainties in the business environment (including staple foods (sorghum, maize, sesame and cowpeas).
the lack of strong institutional or judicial intermediation At the same time, it will be necessary to re-orient the
and formal systems for credit enforcement; weak sector to emerging trends in urbanization, technological
infrastructure; limited market support services; and advancements, and demands for food quality and safety
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standards in the domestic and export markets. This would Strengthening the Agriculture Innovation System for
require a rapid and tangible start toward the widespread enhanced productivity and value addition
adoption of climate-smart agricultural (CSA) practices, • Revive agriculture research and development
better flood-control, irrigation, improved storage of (R&D), seed systems and extension services:
farmer produce, and access to markets and finance — Significant investments are required to establish
including risk transfer instruments, such as drought a modern agriculture research and development
insurance, savings, and credit. system (including the reestablishment of all pre-
civil war crop and livestock research centers) and
KEY RECOMMENDATIONS AIMED AT ADDRESSING the establishment of an extension eco-system with
CHALLENGES TO THE CROP AND LIVESTOCK strong linkages to the agriculture research system.
SECTOR INCLUDE: This needs to be complemented with investments to
develop a robust, commercially oriented seed system
Addressing vulnerabilities related to climate change: capable of supplying the required high yielding,
• Improve access to and adoption of climate-smart drought-tolerant seed varieties and animal breeds.
agricultural practices to enhance productivity and
resilience. A functioning and effective agriculture • Adopt better post-harvest and dry storage
research and extension system is needed to promote facilities and techniques, including linkages with
sustainable CSA farming methods. farmer institutions to support sale choices, ensuring
better grain and oil seeds quality, and minimizing
• Transition to modern and commercial management exposure to dangerous aflatoxins and resulting
of smaller and more drought-tolerant herds. postharvest losses.
• Increase diversification and processing opportunities, • Promote the widespread adoption of digital
and reduce environmental pressure on the rangelands. agriculture technologies in various aspects of value
chains, and support farmer capacity building and
Improving water for rural livelihoods: linkages to service providers.
• Improve infrastructure for irrigation, flood-control,
and rainwater catchment, while also catalyzing • Facilitate the feed and fodder trade and transport
community-level and private investment in the businesses, as well as insurance payouts. This will
form of farmer-led irrigation development and be important in assisting herders with better-timed
community-level natural resource management sales, as well as holding on to valuable livestock assets.
interventions.
• Animal health and disease control: Improve the
• Improve rangelands management: This would delivery of animal health and extension services,
include investments in livestock water infrastructure, including strengthening the capacity for mass
and sustainable rangeland management, such as the vaccinations and disease surveillance, and strengthening
use of hay banks and drought refuges, conservation private veterinary services to boost service delivery.
easements, and reciprocal grazing arrangements;
support for rangeland rehabilitation through • Improve breeds: Investments in breeding programs
intensified soil and water conservation, afforestation are necessary to enhance the productivity and
and reforestation, the planting of indigenous trees, adaptability of the traditional livestock breeds. To this
reseeding of pastures, soil bunding, and the planting effect, the focus should be on selective breeding within
of drought-resistant and fast-growing grasses the existing stock to take advantage of its time-tested
and legumes; and the use of micro catchments to capacity for adaptation, resistance, and rebound to
enhance water filtration, and various other flood local conditions—including the harsh climate, severe
control mechanisms. droughts, poor feed quality, and endemic diseases.
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• Support integrated production systems, leveraging Flows in both directions (exports and imports)
the interlinkages between crop agriculture and peri- contribute to food security, employment in the
urban livestock rearing systems, as an expanded and border region, as well as small trade among women
more efficient feed supply chain would facilitate more and youth.
value addition, among other things.
• Promote commercial food production to cater to
Improving infrastructure and services growing urbanization, and limit the over reliance on
• Strengthen capacity building of institutions for food imports.
improved service delivery, including public extension
services. Partnerships with farmers, professional Access to finance
associations, and private investors in such schemes can • Promote and facilitate access to financial services,
improve service delivery, input supply, and marketing. including insurance and credit for de-risking pastoralists,
as well as investments in new technologies.
Access to markets
• Improve quality infrastructure. Regional cooperation • Incentivize the private sector to invest in the
concerning quality infrastructure will increase with the agriculture sector, including cold chain infrastructure,
meeting of internationally recognized certification. It will innovative technologies, and improved production
also reduce the time lag for entry in the global markets. methods. Support the move up the livestock value
chain through increased investments in value addition
• Participate in trade agreements and facilitate to create much-needed jobs for youth, ensuring their
market access, locally, regionally and internationally. futures —and staving off criminal gangs of ready recruits.
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FISHERIES POLICY NOTE
A. SUMMARY OF KEY MESSAGES • Institutionalize coordination and cooperation
between the FGS and the FMS: This would be
Somalia has the longest coastline in continental achieved through an established coordination
Africa, as well as a very productive marine ecosystem platform for enhanced fisheries sector governance.
due to seasonal upwelling along its Indian Ocean
coast. However, weak governance and management • Strengthen capacity for MCS: Develop the
prevent Somali fisheries from realizing their potential as necessary legal and regulatory frameworks to
a sector that can contribute to economic development, establish and manage a decentralized MCS system to
food security, job creation and revenue generation for fight Illegal Unreported and Unregulated (IUU) fishing.
the country. Efforts are ongoing to strengthen fisheries
governance, but there are several challenges related • Develop and implement fisheries management
to the weak policy and institutional environment; plans to promote sustainability and guide private sector
limited coordination and cooperation between the investment, such that management responsibilities
Federal Government of Somalia (FGS) and the Federal would be shared with fishing communities.
Member States (FMS); a lack of Monitoring Control and
Surveillance (MCS); a lack of guiding policies, laws and • Rehabilitate and reconstruct priority fisheries
regulations to empower fishing communities; and limited infrastructure supported by feasibility studies and
data and research to guide policymakers. Improving assessments to support fishing communities, as well
fisheries governance could support higher economic as incentivize private sector investment.
growth, diversified exports, improved food security,
the provision of jobs, and the generation of revenues • Increase knowledge of domestic fisheries: Develop
for both the FGS and the FMS. Investing in the fisheries research programs and promote the participation of
sector could also set the foundation for developing a Blue universities, establish national data collection systems,
Economy¹⁵⁷ to allow for sustainable ocean use. including vessel and fisheries registry, and determine
the status of fisheries stocks.
B. SUMMARY KEY ACTIONS
MEDIUM- TO LONG-TERM ACTIONS
SHORT- TO MEDIUM-TERM ACTIONS
• Institutionalize intergovernmental decision-
• Policy, legal and regulatory framework: prioritize making to include inputs from the private sector and
the adoption of the draft Federal Fisheries Law, civil society, underpinned by policies that support
ensure consistency of fisheries legislation among information sharing among the various authorities.
the FMS, with supporting regulations in place. Also,
develop a fisheries policy to provide a clear vision for • Strengthen MCS capacity by developing legal
the sustainable development of the sector at the FGS procedures, as well as building the capacity to
and FMS levels. transparently license offshore foreign fishing vessels,
¹⁵⁷ The Blue Economy is the sustainable and integrated development of oceanic sectors, in healthy oceans (World Bank, https://www.worldbank.org/
en/topic/environment/brief/the-world-banks-blue-economy-program-and-problue-frequently-asked-questions)
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document and fine illegal fishing, and engage with depleted. It is also missing the opportunity to create
regional inter-governmental forums, such as the much-needed jobs and improve nutritional outcomes for
Indian Ocean Tuna Commission. coastal communities. Its status as a fragile, conflict and
violence (FCV)-affected country notwithstanding, a major
• Develop the legal and institutional capacity to impediment to turning around this situation is the lack of
manage emerging fisheries through feasibility consensus between the FGS and FMS regarding a shared
studies (for example, a study concerning the governance framework.
domestic, semi-industrial fleet that could encourage
private investment), as well as preparing plans that Progress has been made since 2018, with several
support the co-management of Somali fisheries. agreements signed by the FGS and several/all/most
FMS, thereby laying the foundation for sustainable
• Adopt policies to empower coastal communities to management, and revenue generation and sharing.
secure economic benefits from fisheries, drawing The National Security Council Agreement (2018)¹⁵⁸ gave
on historic and cultural traditions. Establish communal the FMS the authority to issue fishing licenses to vessels
tenure over near-shore fishery resources/areas. operating within 24 nautical miles (nm) from the coast,
with licenses in the rest of the Exclusive Economic Zone
• Formulate a Blue Economy Strategy as a framework (EEZ) to be managed by the FGS. The Agreement states
at the FGS level, enabling the development of that revenues generated by foreign fishing licenses issued
consistent and harmonious FMS marine spatial by the FGS shall be deposited in an escrow account at
planning. The planning would take into consideration the Central Bank of Somalia. In 2019, the Addis Ababa
projected climate change impacts, community-based Agreement¹⁵⁹ set forth the proportion of revenues
fishing zones. As such, it would guide the development generated by the FGS that will be shared with the FMS.¹⁶⁰
of emerging sectors, and includes marine conservation From 2019, official licenses were issued to tuna vessels,
planning for the eventual establishment of Marine generating over US$3 million in revenue, which was partly
Protected Areas (MPAs). shared between the FGS and FMS. This agreement expired
in September 2020, and it has not yet been renewed. Thus,
C. WHERE SOMALIA STANDS revenue-sharing has subsequently ceased.
Because of the governance vacuum, illegal fishing A new federal fisheries law has been drafted,
— done by mainly foreign-owned vessels — has building on previous agreements between the FGS
been rampant in Somalia for several decades. It and the FMS, as well as international agreements to
is threatening the sustainability of marine resources, which Somalia is a party.¹⁶¹ The law makes provisions
degrading habitats, and creating conflicts with local for management responsibilities by the FGS and FMS.
communities. Illegal fishing vessels are often engaged in However, the apparent removal of a provision from
other crimes at sea, including trafficking, smuggling and the final version of the draft law establishing a formal
labor abuse. Several industrial vessels are also operating structure for FGS-FMS coordination could constrain
in both coastal and offshore areas, with limited benefits the consistent implementation of the new fisheries law
flowing back to Somali. once it is formally adopted. This would include broad
participation and coordination on policy decisions among
Somalia is very likely losing millions of dollars in the FMS, as well as cooperation between the FGS and
economic benefits, with its natural capital being FMS. In recent years, Somali stakeholders have proposed
¹⁵⁸ Interim Agreement between the Federal Government of Somalia (fgs), Federal Member States (fms) and Banadir Regional Administration on Revenue
Sharing from the Issuance of Fishing Licenses. (Mogadishu: National Security Council, February 2018).
¹⁵⁹ Agreement on the Management of Fisheries and Revenue-sharing. (Addis Ababa, March 2019).
¹⁶⁰ FGS: 29 percent; Puntland: 18 percent; Jubbaland, SouthWest, and Galmudug: 13 percent; and Hirshabelle: 14 percent.
¹⁶¹ Somalia is a party to the Indian Ocean Tuna Commission (IOTC), the South West Indian Ocean Fisheries Commission (SWIOFC), the United
Nations Convention of the Law of the Sea (UNCLOS), and the Food and Agriculture Organization (FAO) Port State Measure Agreement (PSMA).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
to create a Somalia Federal Fisheries Authority (FSFA), The domestic fishing sector is largely small-scale
which would be governed by a Board comprised of in nature. As such, it is characterized by small-scale
Federal and State Ministers for Fisheries. The creation vessels primarily using gillnets, handlines, and traps.
of an authority needs to be carefully planned as it would Due to decades of conflict and insecurity, communities
have financial implications. However, it would provide the have been unable to establish some form of community-
means for a full implementation of the fisheries policies in based management system. Currently, no policy exists
Somalia. The new law has been pending cabinet approval to establish some form co-management or community-
since December 2020. based tenure that would distribute economic benefits
to communities that participate in ensuring long-term
The FGS lacks the capacity for MCS to effectively resource abundance. This represents a barrier to the
deter illegal fishing in its EEZ. It is likely that pelagic sustainable growth and expanded economic opportunity
fishing vessels from neighboring countries continue to fish for coastal communities.
in Somalia’s EEZ, either illegally or by having signed non-
transparent agreements with various authorities. Somalia Realizing lasting and equitable economic benefits,
is also not fully engaged in the regional management food security and livelihoods from Somalia’s fishing
of important tuna stocks under the Indian Ocean Tuna resources will require a long-term commitment.
Commission (IOTC), even though it is an important coastal It will entail building a policy framework for effective
state with significant tuna resource in its EEZ. In addition, governance based on the nascent federal system, the
there are critical issues related to the overfishing of key tuna empowerment of local communities, and expansion of
species being discussed that could have consequences for management capacity in the FGS and FMS. Critical to
Somalia. Its IOTC membership fees are also in arrears. achieving this will be establishing a political framework
for sharing control and benefits among Federal and State
Similarly, the FMS also have limited legal and authorities, as well as local fishing communities.
institutional capacity to control fishing within
the 24-mile zone proposed to remain under state D. HOW SOMALIA CAN MAKE PROGRESS
jurisdiction, or to participate in coordinated data-
gathering, stock assessments or management Policy recommendations fall into three main categories:
of shared resources with other FMS or the FGS. governance, management, and improved economic benefits.
As a result, other large foreign vessels, in particular A fourth cross-cutting area concerns capacity building for
trawlers and gillnetters, are often operating under non- administration, as well as for fishing communities.
transparent agreements or licenses. These are issued
by the FMS against the provision of the Somali fisheries SECTOR GOVERNANCE
law and are sometimes illegally flagged in Somalia. The
lack of collection, analysis, and the transparent sharing The adoption of the new Federal Fisheries Law should
of data makes it difficult to build what should, by all be a priority action for the Federal Government
accounts, be a strong economic case for coordination of and Parliament. This law provides the foundation and
shared resources among the FMS, as well as between the framework for all subsequent governance actions at the
FMS and FGS. It also hides the ecological and economic federal and state levels. Indeed, it is key to improving
consequences of predatory fishing practices by foreign- fisheries management, including revenue generation for
owned vessels that extract Somalia’s natural capital, the federal and state governments, as well as economic
leaving little or no local benefits. benefits for coastal communities. Once this law is passed,
it can be further strengthened through the establishment
The Somali private sector is very active in fisheries, of operational policies, especially for the management
but its growth is hampered by poor infrastructure, as of fisheries at both the federal and state levels. The legal
well as limited access to domestic and international and regulatory frameworks and the renewal of the FMS/
markets. Post-harvest losses are high, and the lack FGS revenue-sharing agreement will also strengthen and
of jetties, landing sites, cold-chain and processing facilitate the implementation of the new law. Adherence
infrastructure hamper the development of the sector. to the provisions in the revenue-sharing agreement would
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help to build trust between the FGS and FMS, as well as to foreign fishing vessels and their compliance with fishing
support further sector coordination and dialogue. agreements, licenses, and other authorizations.
Operationalizing the new Federal Fisheries Law A policy is needed to guide a long-term strategy
should be complemented by a comprehensive for the development of a domestic semi-industrial
federal fisheries policy. Such a policy would provide for fishing sector. It should include the legal reforms and
the setting of clear objectives for fisheries management foundation of public infrastructure necessary for private
and development in waters under the FGS management sector investment along the value chain, that is, fishing
mandate, that is, 24 to 200 nm. The policy would also vessels, processing plants, fleet services, and so on.
include guidance and core principles for fisheries
management and development in waters under FMS Requirements for the scope, preparation, and
management mandate, that is, the 0-24 nm, to ensure implementation of management plans for selected
coherence and harmonization. The policy should establish fisheries are needed, including through co-management
an FGS/FMS coordination platform for (i) policy dialogue arrangements. Guidance may specify the scope and
and transparent decision making for all relevant fisheries, nature of management committees, access or license
(ii) decision-making as to how to operationalize the arrangements (including fees), monitoring and evaluation,
collecting, sharing and reporting of fishery information, as reporting requirements, stakeholder consultations, and
well as coordination of decentralized MCS operations; (iii) decision making and penalties for non-compliance.
fishery policy reforms at the state and federal levels; and
(iv) agreeing on policies that enable communities to co- It will be important to strengthen regional
manage resources consistently across State jurisdictions. cooperation through the improved participation
of Somalia in regional fisheries bodies or regional
Although the proposed new Federal Fisheries environment bodies of which it is a party, that is, the
Law provides for co-management, regulations IOTC, the South West Indian Ocean Fisheries Commission
for operationalizing this provision are needed to (SWIOFC), the Regional Organization for the Conservation
guide the development and implementation of of the Environment of the Red Sea and Gulf of Aden
co-management arrangements for coastal fishery (PERSGA), the Nairobi Convention, and the Indian Ocean
resources. This includes the possibility of tenure rights Rim Association (IORA).
over selected marine resources and areas. Regulations
may cover guiding principles, responsibilities of the co- SUSTAINABLE SECTOR GROWTH
management committees, participatory surveillance,
stakeholder engagement, decision-making frameworks, There is a need for rehabilitation and construction
and funding and financing for co-management. of public and private fishery infrastructure in
coastal communities to support development of
SUSTAINABLY MANAGING THE SECTOR the sector. Criteria should be established for prioritizing
the development of fishing ports and fisheries centers,
One or more strategies and/or regulations are needed including, for example, the redevelopment of the old
for establishing and managing a decentralized port of Mogadishu. Guidance should also include the
MCS system to fight IUU fishing. In addition, a scale of the infrastructure; the role of the private sector;
regulatory framework for issuing Somali fishing licenses stakeholder engagement and governance; construction
for foreign¹⁶² and domestic vessels is also needed. The financing; facility operations (including private sector
policy may address the issues of transparency, observers, management); and environment, social and economic
vessel monitoring, and information sharing. The licensing performance and reporting. Similar guidance would
regulations should provide for the management of be needed for small-scale fishing infrastructure, for
¹⁶² The terms and conditions for the issuance of licenses to foreign vessels in Somalia should follow the Minimum Terms and Conditions (MTC) for
foreign fisheries access in the SWIOFC region.
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example, jetties, landing sites, cold-chain, and so on, including fisheries. A Blue Economy policy could be
for coastal communities — but specific to the needs operationalized through marine spatial planning,
of these fishing communities and fishery potential to which incorporates marine-protected areas and other
avoid overexploitation of the resources. To help advance conservation measures. In addition, it explores the trade-
fisheries management, it may be prudent to link public offs needed between various sectors for the effective
investments such as these to measurable progress on sustainable use of marine resources.
the part of the FMS and local communities regarding
data-sharing, progress on management planning, and An aquaculture development policy should guide
transparency, among others. the private sector in capitalizing on the potential
for different forms of sustainable aquaculture
Fish value-chain improvements have the potential development along the coast of Somalia. The policy
to improve the livelihoods and food safety of coastal should include broad guidance concerning sustainable
communities, as well as opening opportunities for aquaculture planning for the FGS, as well as public
export markets. The policy could establish a foundation investment, access to finance and other measures (for
for effective private sector engagement in developing and example, aqua-business platforms) needed to support
improving value chains. This would require reforms, and private sector investments.
better access to finance, as well training for those involved
in the value chain. Here again, policies to promote the CAPACITY BUILDING
expansion of seafood value chains could incorporate
incentives that help ensure transparency, traceability Capacity building, training, and mentoring are integral
to deter IUU, as well as data sharing for improved to the development and implementation of fisheries
fisheries management. This should be based on value governance, including management and development
chain improvement plans for the domestic and export at the federal, state and local levels. Across the
markets. Strengthening of food hygiene regulations and spectrum of capacity-building and training investments,
certification standards would also be needed, as well as there is a need for guidance about the scope, nature,
support to ensure adoption and implementation by the delivery and performance assessment of such investments.
private sector. This would be done in concertation with Programs should establish priorities concerning delivery
the Somalia Bureau of Standards, and the Ministries of modalities of capacity building activities including the use
Health and Education. of training of trainers, mentoring, collaborative exchanges
in other countries, including South-South cooperation in
Fisheries policies and regulations should be order to establish and maintain expertise in the agencies
considered within a broader Blue Economy Policy. and to provide cost effective training. Other training
Such a policy would provide an integrated approach guidance may include determining priority modalities
to managing marine resources. It would also create (virtual or in-person, or learning by doing), the scope and
opportunities for new sectors, such as aquaculture, as nature of scholarships, and internships or work/exchange
well as potential synergies between the marine sectors, placements, among others.
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PETROLEUM SECTOR
GOVERNANCE POLICY NOTE
The realization of commercial petroleum production
A. SUMMARY OF KEY MESSAGES
in Somalia could take a decade or more. Therefore,
it is essential that the FGS take early steps to resolve
Somalia has potentially sizeable offshore petroleum
these challenges so that potential political disputes
deposits, although the scale of reserves remains
are resolved, and a solid foundation is established for
unproven. Progress has been made in establishing the
petroleum exploration and development in Somalia. The
legal and fiscal framework for petroleum management and
FGS needs to manage Somalia’s petroleum resources in a
the award of oil and gas Production Sharing Agreements
manner that protects national interests, ensures political
(PSAs). However, implementation of the framework faces
stability, enhances state credibility, minimizes contractual
a number of challenges, including the following:
risk, and avoids damaging the environment.
• Steps taken toward oil and gas licensing have not
B. SUMMARY KEY ACTIONS
been in full compliance with all applicable Federal
Government of Somalia (FGS) laws, raising the
SHORT- TO MEDIUM-TERM:
risk that PSA awards may not protect Somalia’s
interests — or that they could be subject to legal or
1. Resolve any outstanding legal issues surrounding
compensation claims. Most recently, in February
the award of 7 PSAs to Coastline Exploration in
2022 the Minister of Petroleum awarded 7 PSAs to
February 2022.
Coastline Exploration without following all applicable
legal requirements. FGS has since formally informed
2. Submit the Extractives Industries Income Tax (EIIT)
Coastline that it considers the agreements to be null
Bill to Parliament.
and void.
3. Ensure that all future petroleum awards are made
• Not all Federal Member States (FMS) have accepted
in full compliance with the FGS’s legal framework
the legitimacy of the Petroleum Act and the Somalia
so that FGS interests are protected, and the risk of
Petroleum Authority, thus creating the potential for
contractual dispute is minimized.
political dispute in case of any FGS award in their
territory. Puntland considers the Petroleum Act in
4. Ensure that all direct negotiations are fully justified,
breach of the 2012 Interim Constitution.
based on proven legal rights.
• Established revenue-sharing arrangements are likely
5. Ensure that awards are appropriately sequenced. In
to lead to highly unequal revenue sharing across the
particular: PSAs should only be entered into once the
FMS, with limited scope for re-balancing, thereby
EIIT Bill has been enacted. Direct awards should only
creating the potential for political tension.
be negotiated once bids for the licensing round have
been received and evaluated. This would enable the
• The capacity of the FGS to regulate, monitor and
establishment of commercial price benchmarks.
audit petroleum sector activities and environmental
risks is currently extremely limited.
6. Re-establish a consensus with all FMS concerning
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petroleum sector management and revenue sharing, Regional Administration (BRA) concerning the
modelling the revenue implications of different ownership, management, and sharing of petroleum
revenue-sharing scenarios as necessary and ensuring and mineral resources. The agreement establishes
that revenue-sharing arrangements are equitable. the principle of joint management of petroleum
resources and provides a detailed breakdown of how
7. Scale-up efforts to develop FGS regulatory different types of petroleum revenues will be shared
capacity, particularly in the areas of oversight, between the FGS, the producing FMS and the non-
monitoring, and audit of petroleum operations and producing FMS, including the BRA.
environmental management.
• The Petroleum Act (2020): It provides a framework
MEDIUM- TO LONG-TERM: for the management of the petroleum sector
in Somalia. It contains some basic provisions
8. Strengthen environmental oversight by enhancing applicable to PSA awards and signatures. It assigns
intergovernmental cooperation, as well as building the the FGS the exclusive right to enter into PSAs
capacity of the National Climate Change Committee. with oil companies. It establishes the Somalia
Petroleum Authority (SPA) as the entity responsible
C. WHERE SOMALIA STANDS NOW for negotiating PSAs on behalf of the FGS and
regulating petroleum operations. The SPA Board is
Somalia has potentially sizeable offshore petroleum comprised of representatives from the FGS and the
deposits, although the scale of reserves remains FMS. The Act enables the FGS to take a 20 percent
unproven. The ownership and management of these stake in petroleum production through a National Oil
deposits has historically been an issue of contention Company. The producing FMS have the right to take
between the FGS and a number of the FMS, particularly a 10 percent stake through a State Oil Company. It
Puntland. In the decade prior to 2016, there were several also requires all petroleum revenues to be shared in
overlapping attempts by different entities to conduct accordance with the Baidoa Agreement.
seismic surveys and award exploration contracts.
This occurred in the absence of an agreed regulatory • The Extractives Industries Income Tax (EIIT) Bill: It contains
framework or any sector capacity. key PSA fiscal terms, including royalty rates and the
applicable taxation regime. Development of the EIIT Bill
Since 2016, the FGS has made progress in establishing is consistent with the Petroleum Act’s requirement that
the legal and fiscal framework for petroleum the tax provisions of PSAs are governed by a ‘special
management and the award of oil and gas PSAs. Key law,’ in conformity with Somalia’s financial system.
elements of the framework include: Enactment is a Heavily Indebted Poor Countries
(HIPC) Completion Point (CP) Benchmark. The Bill
• The Procurement, Concessions and Disposals Act (2016): awaits Cabinet approval and submission to Parliament
It outlines the detailed procedural requirements for at the start of the new administration.
the negotiation and award of PSAs, whether through
open international competitive tendering or direct However, implementation of this framework
negotiation. It requires that all PSA award processes continues to face a number of challenges. Although
be subject to oversight by the Inter-Ministerial realization of commercial petroleum production in
Concessions Committee (IMCC), a body established Somalia could take a decade or more, it is essential that
under the Act’s concessions section. the FGS take early steps to resolve these challenges. In
doing so, it can ensure that potential political disputes
• The Baidoa Agreement (2018): It contains an are mitigated, and a solid foundation is established for
agreement between FGS, all five FMS and the Banadir petroleum exploration and development in Somalia.
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TOWARDS THE FUTURE DRIVERS OF GROWTH - PETROLEUM SECTOR GOVERNANCE POLICY NOTE
MAIN CHALLENGES approval, nor did it seek IMCC approval of the PSA
that was under negotiation with these firms.
1. Steps taken toward oil and gas licensing have
disregarded a number of applicable legal requirements, • No stakeholder consultations were conducted prior
raising the risk that PSA awards may not protect to launching the license round or conducting direct
Somalia’s interests — or that they could be subject to negotiations, as required by the Procurement Act.
legal or compensation claims.
In addition, the planned signing of 10 PSAs in January
The SPA Board was appointed in July 2020, and the 2021 was inconsistent with the commitment the FGS
MPMR launched a licensing round for 7 offshore had made to the International Monetary Fund (IMF)
blocks in August 2020, with an initial deadline of in 2020 that it would not issue any oil exploration
March 2021. In November 2020, the SPA posted a licenses until the EIIT Bill was enacted, and the Model
licensing round tender protocol and a Model PSA on PSA was finalized.¹⁶⁴ Ultimately, the MPMR did not sign
the licensing round website.¹⁶³ In parallel to launching any awards in January 2021. The SPA extended the licensing
the licensing round, the MPMR and the SPA carried out round bid submission deadline to the end of June 2021, and
negotiations for the direct award of a further 10 offshore then announced a further postponement in June.¹⁶⁵
blocks to two oil exploration firms, Coastline Exploration
and Liberty Petroleum, with the intention of signing PSAs The MPMR and the Ministry of Finance subsequently
in Mogadishu in January 2021. resolved the main outstanding differences between
the fiscal terms of the 2020 Model PSA and those of
Throughout this process, the MPMR and the SPA the EIIT Bill. On November 5, 2021, the IMCC approved
disregarded the applicability of the Procurement a revised version of the Model PSA (2021 Approved
Act to the petroleum sector, and made no effort PSA) for use in the licensing round. The SPA has not yet
to harmonize the PSA fiscal terms with the updated the tender protocol or submitted it to the IMCC
requirements of the EIIT Bill. Notably: for approval,¹⁶⁶ and no new timetable has been issued for
the licensing round.
• The Model PSA and tender protocol issued on the
licensing round website in November 2020 had Separately, in February 2022, the Minister of
not been approved by the IMCC as required the Petroleum signed 7 PSAs with Coastline Exploration.
Procurement Act. The Minister did not seek IMCC approval to enter into
direct negotiations as required by the Procurement
• The fiscal terms of the Model PSA differed Act, and did not submit the PSA terms to the IMCC for
significantly to the terms contained in the EIIT Bill. endorsement. Given that the awards were directly
negotiated without the benefit of commercial price
• The tender protocol contained provisions benchmarks, the basis for the agreed profit-sharing
inconsistent with the requirements of the ratio between FGS and Coastline is not known. Both
Procurement Act. the President and the Prime Minister issued statements
rejecting the awards, and the Auditor General declared
• The MPMR did not justify the basis for negotiating them null and void on the basis that they were negotiated
direct awards with two firms by seeking IMCC and signed in contravention of the laws of Somalia.¹⁶⁷
¹⁶³ www.somalialicensinground.com
¹⁶⁴ Second Review of the Staff Monitored Programme. IMF Country Report 20/85 (March). (Washington, DC: IMF, 2020).
¹⁶⁵ www.somalialicensinground.com
¹⁶⁶ There are a number of provisions in the Tender Protocol that need to be adjusted to ensure that they are aligned with the legal framework, thus
protecting FGS interests. These include, among others, the scope for post-bid negotiations and the potential to make awards even when there
is inadequate competition.
¹⁶⁷ In particular, Prime Minister's decree no. 047 of 06/12/2018; Prime Minister's Circular XRW/0481/11/2020, dated 26/11/2020; Articles 126, 116, 117
and 139 of the Procurement Act; Article 26 (1) (b & c) of the Somalia Petroleum Law; and, Articles 44 and 53 (1) of the Provisional Constitution.
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
The Ministry of Foreign Affairs subsequently sent a letter Global experience suggests that rigid sharing
to Coastline, formally conveying FGS’s position that the formulas that are codified in law can be problematic,
agreements are null and void. as there is limited scope to adjust them subsequently
in light of experience and evolving needs.¹⁶⁹ Article 44
2. The risks associated with awarding PSAs without of the Provisional Constitution calls for the allocation of
following due process have been a subject of natural resources to be negotiated and agreed upon by the
continuous dialogue between the FGS, the Financial FGS and the FMS. However, the provisions of the Baidoa
Governance Committee (FGC),¹⁶⁸ the World Bank, Agreement have been written into law through their
and the International Monetary Fund (IMF). These inclusion in the Petroleum Act. This means that revenue-
risks have now emerged in full, as FGS’s nullification sharing provision in the Baidoa Agreement can only be
of the awards to Coastline may be disputed by adjusted through an amendment to the Petroleum Act.
Coastline. Not all FMS have accepted the legitimacy
of the Petroleum Act and the Somalia Petroleum The 2018 Baidoa Agreement says that revenues will
Authority, creating the potential for political dispute be shared in a “balanced and fair manner”. However,
in case of any FGS awards. under the terms agreed, the FMS that have exploitable
petroleum resources have a significant revenue advantage
Puntland raised objections to the Petroleum Act when over those that do not. A substantial share of revenues is
it was under discussion in the Upper House of the FGS earmarked for the oil-producing FMS, and a further share
Parliament. After it was signed into law in February 2020, is earmarked to the specific district within the oil-producing
the President of Puntland issued a statement rejecting it FMS where the oil is located.¹⁷⁰ (See Annex 1 for details).
on the basis that it violated a number of provisions of the
2012 Provisional Constitution. He stated that Puntland A World Bank analysis has shown that, in total, across
would not be involved in the implementation of the Act all revenue streams, an oil-producing FMS, including
until “all clauses that violate the Federal Constitution and its oil-producing district, is likely to receive between 10
the federalization system are removed”. and 17 times more revenue than each non-producing
FMS. This is an extremely large disparity by international
Puntland did not nominate a representative to the standards. Indeed, it raises the prospect of highly uneven
SPA Board, and its Minister of Energy, Minerals development across the FMS in the event of a sizeable
and Water has stated that Puntland will not oil discovery, as well as subsequent increased political
recognize any agreement entered into by the SPA. tensions. The FGS could try to offset the disparity by
It expects the incoming FGS administration to develop allocating most of its revenue shares to the non-producing
a consensual agreement concerning national resource FMS. However, its own share will not be large enough to
management, development and sharing procedures, completely enable it to offset the disparities between the
to be ratified by all FMS. This suggests that it may be producing- and non-producing FMS.
advisable to amend the revenue-sharing provisions in
the Baidoa Agreement in pursuit of more equitable The sizeable shares to the oil-producing FMS also
outcomes. Relatedly, this could also help to reduce raise the risk of inefficient spending/wastage, and even
political tensions. corruption in the event that the FMS (and its producing
District) are not effectively able to absorb large revenue flows.
3. The Baidoa Agreement raises the prospect of
highly unequal revenue sharing across the FMS, with 4. The FGS capacity to regulate petroleum sector
limited scope for re-balancing. activities is currently extremely limited.
¹⁶⁸ The FGC is a high-level advisory committee comprised of senior members of the FGS and international representatives. The FGC advice covers
fiscal issues, contracts and concessions, natural resource management, and central bank governance. See the website for further information:
https://mof.gov.so/fgc
¹⁶⁹ Natural Resource Revenue Sharing, Natural Resource Governance Initiative (NRGI) and UNDP, (September 2016).
¹⁷⁰ If oil is found off-shore, a specific share is earmarked to the district shore where the oil is located.
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TOWARDS THE FUTURE DRIVERS OF GROWTH - PETROLEUM SECTOR GOVERNANCE POLICY NOTE
Although the FGS has passed the Petroleum Act and ensures political stability, enhances state credibility,
appointed the SPA Board, its regulatory framework minimizes contractual risk, and avoids damaging the
for petroleum is far from complete. The Petroleum environment. To meet these objectives and address current
Act requires the MPMR to issue regulations concerning challenges, the following recommendations are offered:
a number of issues to guide implementation of the
Act, including management of petroleum operations, 1. Any outstanding legal issues surrounding the
decommissioning, environmental management, and award of 7 PSAs to Coastline Exploration in February
the management of grants awarded to prior to 1990. 2022 are resolved
Although the MPMR issued a set of petroleum regulations
in 2017, they need updating and expanding to meet the Conclusive resolution of any outstanding legal issues
requirements of the Act. This will help to ensure that the regarding the nullified awards to Coastline is essential to
SPA can effectively regulate petroleum operations in line safeguard FGS’s reputation for good financial governance
with the provisions of the 2021 Approved PSA. and petroleum sector management.
Critical regulations required for the effective 2. All future petroleum licensing is in full compliance
management of the 2021 Approved PSA include with FGS’s legal framework.
regulations on flaring; decommissioning funds;
repair and remedial requirements; procedures for the Compliance with the legal framework is essential to
transmission of data and reporting requirements; and protect the interests of the FGS and minimize the risk of
standard operating procedures for petroleum operations contractual dispute. It encompasses two main dimensions:
and facilities.
i. Consistency of the PSA terms with the requirements
In addition, the SPA needs to rapidly expand its of both the Petroleum Act and the EIIT Bill.
capacity to effectively fulfill its oversight and
management functions. An entire operational ii. Consistency of the tender, negotiation and award
structure needs to be established below the Board. A processes with the requirements of both the
World Bank funded study¹⁷¹ concerning the institutional Petroleum Act and the Procurement Act.
development of the SPA identified the following short
and medium-term needs: 3. All direct negotiations are fully justified, based on
proven legal rights.
• Short-term: The immediate SPA focus should be on
building capabilities in data management, licensing Direct negotiations should only be conducted with
and promotion operations, strategic health, safety firms that have proven legal rights to acquire petroleum
and environment (HSE) oversight, and effective contracts. The commencement of direct negotiations
coordination between the FGS and the FMS. should be approved by the IMCC, as required by the
Petroleum Act. Negotiations should be conducted on the
• Medium-term: Following petroleum discoveries, basis of the same PSA that is used in the licensing round.
the focus should shift to building SPA capacity in
the spheres of audit and monitoring of petroleum 4. Awards are appropriately sequenced.
operations, as well as ensuring compliance with
applicable HSE requirements. The recommended sequencing has two main dimensions,
as follows:
D. HOW SOMALIA CAN MAKE PROGRESS
i. PSAs are only signed after the EIIT Bill has been enacted.
The FGS should aim to manage Somalia’s petroleum This is consistent with FGS’s undertaking vis-à-vis the
resources in a manner that protects national interests, international community and supports the intent of the
¹⁷¹ Institutional Development of the Petroleum Regulatory Authority in the Federal Government of Somalia, (HIS Markit and Hensley Partners, 2020).
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022
HIPC Completion Point benchmark. It also means that The FGS should also take steps to establish fiscal
the FGS will not be liable under the PSA stabilization rules under the 2019 PFM Act to determine how
clause to compensate the contractor for increased much petroleum revenues are shared in any given
costs arising from the application of the EIIT law. year, and how much are saved. If re-opening the
Baidoa Agreement and amending the Petroleum Act
ii. Direct awards are only negotiated after bids have been is not feasible in the short-term, the FGS also has an
received and evaluated under the licensing round. This opportunity to use the Constitutional review process to
will enable price benchmarks established through the establish an overarching mechanism for equalizing all
competitive licensing round to be used to guide the revenues across the FMS. In this way, they would not be
negotiations of the commercial terms of direct awards. entirely determined by individual sector agreements.
5. Consensus is re-established between the FGS and 6. Increase efforts to develop FGS regulatory capacity.
all FMS concerning petroleum sector management
and revenue sharing — and revenue-sharing The MPMR needs to develop and issue all the regulations
arrangements are equitable. required by the Petroleum Act. The FGS also needs to
partner with international organizations to develop the
The FGS needs to consult Puntland to understand its capacity of the SPA to regulate petroleum sector operations,
concerns over the Baidoa Agreement and the Petroleum particularly in the areas of oversight, monitoring, and
Act. In addition, it needs to take steps to address them audit of petroleum operations, as well as environmental
in the context of discussions with all FMS. The FGS is management. To address the local environmental risks of
also advised to review the revenue-sharing provisions in fossil fuel production, it will also be important to strengthen
the Baidoa Agreement to assess whether there is a need the capacity of the National Climate Change Committee,
to rebalance the revenue shares to improve equity. To which is a multistakeholder, high-level policy coordination
accomplish this, the FGS will need to model the revenue committee. In addition, an intergovernmental cooperation
implications of different revenue-sharing scenarios prior agreement concerning the management of environmental
to holding any revenue-sharing discussions with the FMS. risks should be established.
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TOWARDS THE FUTURE DRIVERS OF GROWTH - PETROLEUM SECTOR GOVERNANCE POLICY NOTE
ANNEXES
ANNEX 1: BAIDOA AGREEMENT: PETROLEUM REVENUE SHARES
Table 1: Revenue Shares according to the Baidoa Agreement (%)
Revenue FGS FMS District FMS
Percent share (producing) (producing) (all non-producing)
Offshore profit oil 55 25 10 10
Onshore profit oil 30 30 20 20
Royalty 40 40 10 10
Signing bonus 40 60
Surface rent 30 50 20
License fee 50 50
Production bonus 30 50 10 10
Corporate income tax 100
Export tax 60 40
Capital gains tax 50 30 20
Seismic data 50 50
Capacity building 50 50
Local community development 30 70
Table 2: Baidoa Agreement: Revenue Shares by FMS (%)
Percentage Share FGS Oil-Producing FMS Each Non-oil
(including producing District) Producing FMS
Offshore profit oil 55 35 2
Onshore profit oil 30 50 4
Royalty 40 50 2
Signing bonus 40 60
Surface rent 30 70
License fee 50 50
Production bonus 30 60 2
Corporate income tax 100
Export tax 60 40
Capital gains tax 50 50
Seismic data 50 50
Capacity building 50 50
Local community development 100
Note: This includes the Banadir Regional Administration.
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SELECTED WORLD BANK GROUP PUBLICATIONS
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COLLECTION OF POLICY NOTES FOR THE NEW SOMALI GOVERNMENT - JUNE 2022 SELECTED WORLD BANK GROUP PUBLICATIONS
World Bank. 2018. Somalia Education Programmatic Technical Assistance : Status of Education Management Information
System. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/317341555399356772/
Status-of-Education-Management-Information-System
World Bank. 2018. Study on Understanding the Role of Non-state Education Providers in Somalia. Washington, D.C. : World
Bank Group. http://documents.worldbank.org/curated/en/487221555358250787/Study-on-Understanding-the-Role-
of-Non-state-Education-Providers-in-Somalia
World Bank. 2016. Somalia Education Programmatic Technical Assistance : Identify and Suggest Improvements to Working
Practices in Puntland’s Education Management Systems. Washington, D.C. : World Bank Group. http://documents.
worldbank.org/curated/en/219491555398737766/Identify-and-Suggest-Improvements-to-Working-Practices-in-
Puntland-s-Education-Management-Systems
Naqvi, Maniza B.; Majoka, Zaineb; Leydier, Beatrice. 2018. Somalia - Social protection : stocktaking of evidence for a social
protection policy and framework. Washington, D.C. : World Bank Group.
http://documents.worldbank.org/curated/en/771121530869186023/Somalia-Social-protection-stocktaking-of-evidence-
for-a-social-protection-policy-and-framework
Al-Ahmadi, Afrah Alawi; Zampaglione, Giuseppe. 2022. From Protracted Humanitarian Relief to State-led Social Safety Net
System : Somalia Baxnaano Program. Social Protection and Jobs Discussion Paper, no. 2201 Washington, D.C. : World
Bank Group. http://documents.worldbank.org/curated/en/426111642078045285/From-Protracted-Humanitarian-
Relief-to-State-led-Social-Safety-Net-System-Somalia-Baxnaano-Program
Water, the Environment, and Disaster Risk Management
Danert, Kerstin; World Bank. 2021. Water+ in Somalia : A Sectoral Analysis. Washington, D.C. : World Bank Group. http://
documents.worldbank.org/curated/en/099430012022133021/P1749940368d320210ae1e017c807dd742d
Sandström, Klas; World Bank. 2021. Somalia : Surface Water and Riverine Assessment - Technical Report.
Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/099430012022130498/
P17499403c63df07e086e90eab1140bf66d
Tuinhof, Albert; Groen, Jacobus; Petrucci, Bruno; World Bank. 2021. Somalia : Groundwater Quality - Technical Note.
Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/099430212022126696/
P1749940f797210840b3e90b40b1359a655
World Bank. 2021. Somalia : Groundwater Assessment : Technical Report. Washington, D.C. : World Bank Group. http://
documents.worldbank.org/curated/en/099615012012129914/P1749940c70d5d09008a3203ad9eeb97d1a
Alex, Leslie Joy; World Bank. 2021. Somalia : An Institutional Analysis - Technical Report. Washington, D.C. : World Bank
Group. http://documents.worldbank.org/curated/en/099430112022126260/P17499407677ef06a0830f066d16f667192
World Bank. 2021. Digging for Data: Towards Understanding Water as a Limiting or Enabling Factor for Socioeconomic Growth
in Somalia. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/903161632518944172/
Somalia-Economics-of-Water-Summary-Report-Digging-for-Data-Towards-Understanding-Water-as-a-Limiting-
or-Enabling-Factor-for-Socioeconomic-Growth-in-Somalia
Dubow, Abdirahman Zeila; Hart, Tracy; Collier, John Bryant; De Fontaubert, Charlotte; Million, Julien Marie Francois;
Thalheimer, Lisa. 2020. Somalia - Country Environmental Analysis : Diagnostic Study on Trends and Threats for
Environmental and Natural Resources Challenges. Washington, D.C. : World Bank Group. http://documents.worldbank.
org/curated/en/742491594100313982/Somalia-Country-Environmental-Analysis-Diagnostic-Study-on-Trends-and-
Threats-for-Environmental-and-Natural-Resources-Challenges
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Parvez, Ayaz; Meutia, Rina; Hussein, Muhumed; Garane, Guled Korfa; Riddell, Hugh. 2020. Somalia - 2019 Floods
Impact and Needs Assessment. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/
en/764681585029507635/Somalia-2019-Floods-Impact-and-Needs-Assessment
Urbanization
Watanabe, Makiko; D'Aoust, Olivia Severine. 2021. Somalia Urbanization Review : Fostering Cities as Anchors of Development.
Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/404161611315968667/Main-Report
Natural resource sectors
World Bank; FAO. 2018. Somalia Country Economic Memorandum: Rebuilding Resilient and Sustainable Agriculture.
Washington, D.C. : World Bank Group. https://www.fao.org/3/i8842en/I8842EN.pdf
World Bank. 2016. Review of the Legal, Regulatory, and Fiscal Framework of Somalia for the Petroleum Sector. Washington,
D.C. : World Bank Group. http://documents.worldbank.org/curated/en/109011561527328156/Review-of-the-Legal-
Regulatory-and-Fiscal-Framework-of-Somalia-for-the-Petroleum-Sector
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