November 2005

1. Somalia Country Economic Report From Resilience Towards Recovery and Development November 2005

2. Areas covered by the report • Public Sector Institutions and Management • Sectoral Performance and Environmental Issues • Macroeconomic Management and Trade • Private Sector Development and Legal Framework • Education and Health Implications for JNA

3. The Country Economic Report (CER) • Provides an overview of the economic and social situation in Somalia • Identifies key policy challenges • Suggests an approach for strengthening the delivery of public services - private sector -communities - governments.

4. The Social and Economic Costs of the Conflict • Since 1990, civil conflict, continuing insecurity and absence of government in many parts of the country • Access to basic services worsened welfare and poverty compared to pre-civil war times • Poor infrastructure and weak governance hamstrung the economy’s potential • increased remittances have partially cushioned living standards a from the sharp drop in per capita output. • Vibrant private sector and emergence of community based delivery systems.

5. Macroeconomic Management and Trade Main Findings: • The economy is dollarised for all large business and personal transactions • Open Economy. Exports in 2004 a record high of about $265 million or about 19% of nominal GNP. • Fiscal Capacity in the northern regional states weak- low revenue collection, expenditures mostly for security and general administration. • By end-2004, Somalia’s total external debt is estimated at $3.2 billion. Implications: • Currency reform- low seignorage, but inflation risks for the poor. • Low, ad-valorem and non-discriminatory taxes linked to service provision, debt service capacity negligible.

6. Public Sector Institutions and Management Main Findings: • The political and economic challenges facing the TFG and the regional and local authorities in Somalia are formidable. • There is a strong regional diversity of security and administrative conditions. Implications: • Building accountable and capable Somali state institutions. • For those areas where the public sector will play a role, existing systems of planning, budgeting, financial controls, and reporting need to be urgently strengthened and made transparent to ensure responsiveness to the population needs and accountability of state structures and public servants to taxpayers and donors.

7. Agricultural Performance and the Environment Main Findings: • In the south-central regions, livestock exports and crop production in both the rain-fed and the irrigated areas have suffered in recent years from poor security conditions. In the northern regions poor veterinary services hinder pastoralists • Environmental degradation in fragile areas • High Potential fisheries Implications: • Address insecurity especially in ports and tackle environmental conflicts • Provision by the public sector of animal and plant health and certification services is an urgent priority • Opportunities for marine exports

8. Private Sector Development and Legal Framework Main Findings: • Civil strife had a devastating effect on the small industrial structure in both north-west and southern Somalia. • In all regions, the private sector is providing sometimes better and more efficient services than the state before the civil war. • There are, however, critical gaps in private sector provision, where absence of an effective state role is felt more acutely. Implications: • Enable the private and NGO sectors to expand production of private and public goods and services, through a market and property rights friendly regulatory and legal framework. • Rebuild a lean federal court system and encourage the establishment of a modern, formal arbitration system.

9. Education and Health I Main Findings: • Primary school GER around 19.9% c.f. (pre-war rate of 8.2 %). Secondary enrollment 1.1% in 2001, the lowest in the world • Girls have even more limited access to education, • Schools are inadequately governed, supplied, and equipped, but local communities are active in education management all across Somalia. • The under-five mortality rate is estimated at 224 per 1,000 live births ( 172 average for Sub-Saharan Africa). Infant mortality 132 in 1999 (SSA 107). Maternal mortality the highest in all of Africa. Somalia among the worst five countries with respect to tuberculosis prevalence, more than a four fold increase since 1995. • Rising dependency on khat a growing public health and social problem .

10. Education and Health II Implications: • make the best possible use of very constrained public resources, to improve quality of service delivery, and to expand access. • Strategic priorities are training of teachers and health workers, correcting the gender bias in education, prevention of infectious diseases like tuberculosis, rehabilitating uneducated militia fighters, ensuring access by the poor to primary services, leveraging as much as possible community, NGO, and private sector providers. • Secondary education, including standardization of curricula, tertiary education and curative health services can be left in the hands of community and private providers

11. Implications for JNA • Stimulate private sector through “market -friendly” framework • Support local and community initiatives for service delivery • Recognise opportunities for reconciliation and risks of conflict. • Acknowledge mistrust many Somalis may harbor, by rebuilding state institutions with an exceptionally strong accountability framework.