Boris Lvin (bbb) wrote,
Boris Lvin


Somalia - From resilience towards recovery and development

10. In all regions, the private sector is providing sometimes better and more efficient services than the state before the civil war, as in telecommunications - an international phone call costs 50 cents per minute, the cheapest rate anywhere in Africa - and air transport - Daallo Airlines flies Paris-Djibouti for 40 percent o f the price of Air France. Sometimes it is doing so less reliably and efficiently, as in electricity, water, and sanitation but service is now available in towns that never benefited from those services in the previous autocratic regime. And sometimes, as in the case of banking services and roads, only minimal services are available. The private sector also offers essential social services, including health and education, whose coverage in some cases extends beyond peak levels achieved under the previous regime. Even in the areas of court services-dispute resolution, contract enforcement, property rights protection, and law and order - Somalis have largely relied on private solutions based on traditional clan customs.


2.21. Filling the void created by the absence or weakness of state institutions, the private sector has grown impressively in recent years, especially in service activities (see section below with more details on such private sector activities). Unlike the 1970s and 1980s when most of the output of the small industrial sector and many services were provided by the public sector, virtually all industrial production, services provision, and trade is firmly today in the hands of the private sector. There have been significant (but unmeasured) private investments in commercial ventures, including in trade and marketing; money transfer services; transport; communications; airlines; telecommunications; other services including construction and hotels; education and health; and fishery equipment, largely funded by the large remittances fiom the Diaspora.


2.26. Despite the absence of a central or even a regional administration, economic activities rebounded, albeit at a lower level than before the civil war, in urban centers from their through in the early 1990 thanks in part to UNOSOM in the mid-1990s but mostly to the private sector and remittance flows from the Diaspora. New investment was undertaken and new employment opportunities were created by Somalis in the Diaspora and local business groups, even in historically insecure and politically unstable cities across the south-central region (for example, Mogadishu, Merca, Beletweyne, and Kismaayo) in areas such as telecommunications, the airline industry, trade, security services, education, water, electricity, real estate and construction services, in addition to the remittance sector itself (Center for Research and Dialogue, 2004). Mogadishu has also witnessed resurgence in small manufacturing companies, with about 25 active manufacturing plants producing a variety of products, such as pasta, mineral water, sweets, plastic bags and sheets, hides and skins, detergent and soap, aluminum, foam (mattresses and pillows), and fishing boats (Roland Marchal 2005).


2.27. In the immediate post-civil war period, trade was hampered by a lack o f trade finance and insurance services, the breakdown of transport and communication networks, poor marketing facilities, limited access to international markets and the prevailing insecurity conditions. While these constraints still act as brakes to Somalia’s overseas and cross-border trade expansion, Somalia has become a major supplier to large parts of the Horn of Africa of cattle, charcoal, sugar, pasta and electronics.

Trade, including cross-border trade, not only survived state failure, it has in fact increased dramatically after 1991 (Little 2003). It was facilitated by three main factors: the growth in remittances, which helped stabilize the Somali Shilling; the growth of the telecommunication sector, which made possible for accurate and timely information to reach even remote settlements; and the growth of the remittance companies, which did away with the need to transport large quantities of cash across borders. The combination of these factors resulted in deep domestic, cross-border, and international market integration, despite the highly insecure conditions in south-central Somalia. The country has become a de facto duty free zone and a critical part of a trade network spanning from Dubai - a critical supply and finance center for Somali businessmen - to Ethiopia and Kenya and their neighbors.


2.28. Export estimates based on partner country customs data show a higher export value in 2000 than in the period 1988-90. In 2001, livestock exports were hit hard by the unexpected Saudi ban. Later export data from partner countries in the COMTRADE database are showing further major declines in livestock exports, as well as major annual fluctuations in other exports. These more recent estimates, however, are unreliable, as many countries report their detailed trade data with large delays. More reliable aggregate trade flows data reported by partner countries to the IMF show sharply higher total exports in recent years, reaching US$ 265 million for 2004, a historical record.


2.29. In the same vein, solid data on actual physical shipment of livestock exports from the ports of Berbera and Bosasso (the only ports shipping livestock in the last decade) show that a major recovery following the Saudi ban was already underway by 2002. As of 2004, the value of sheep and goats exports from these two ports alone is estimated at more than US$ 60 million and of all livestock exports at US$ 79 million. As explained elsewhere in this report, banana exports which represented the largest pre-war export item at around US$ 35 million, have virtually stopped. Recorded charcoal exports increased sharply through 2001, reaching a peak o f US$ 12.3 million in 2001, as the downward pressures on family incomes mounted. A ban on charcoal exports adopted by the northern regions may explain the later decline. At the same time meat exports also showed a surprising expansion from zero in the 1980s to more than US$ 2 million in 2001. Fish and hides are skin are also large exports, with no clear trend in the data in recent years.

2.30. The most important destinations for these exports are Yemen, Kenya, Ethiopia and the United Arab Emirates (UAE). Saudi Arabia was also the most important buyer of livestock until a ban was placed on the importation of livestock following a suspected (but unconfirmed to this date) outbreak of Rift Valley fever in the Horn. Since 2001, livestock exports have been diverted to Yemen, Oman, and the UAE. Trade with Italy, Somalia’s main trading partner in the 1980s which absorbed almost all its banana shipments, has ceased almost entirely.


4.32. Telecommunications. In a country where telecommunications before the civil war were very expensive and unavailable to most of the population, the 1990s heralded a dramatic and positive revolution in telecommunications. Somalia's pre-war government network of only 17,000 lines covering only two cities was comprehensively destroyed in the fighting that broke out in 1991, reducing teledensity to zero. For some years in the early 1990s, the telecommunications system was a mix of military radio networks that reached even remote villages - and that guaranteed a unified foreign exchange rate throughout the country - and satellite phones owned by international agencies operating in the country. International connections were either technically improbable or extremely expensive.

4.33. Since then, nine private operators have begun operating in various parts of the country, providing telecommunications service to more than 160,000 fixed and mobile subscribers in almost every province and town. Fixed teledensity is higher than in many of the country's neighbors - almost three times Ethiopia's. And access to telecommunications is perhaps the most affordable on the continent. In Mogadishu a one-minute call to any country in the world cost US$ 0.50 in February 2005 and in the main urban centers of northern Somalia less than about US$ 0.85. In small towns and villages, the cost is higher at about US$ 1.3 or US$ 1.5, but still much less than in Nairobi, Khartoum, or Addis-Ababa. Moreover, internet service is also widely available at cybercafes.

4.34. Despite the political divisions of the country, the telecom companies that started operating first in Mogadishu and Hargeisa, and later in Gaalkayo and Bosasso in the mid-1990s offered access to populations extending beyond ethnic boundaries. Their main strategy was either to open the company to shareholders from locations that were not otherwise reachable because of the clan affiliations of company owners or to team up right from the start with people originating in those areas. In most cases, local shareholders were asked to pay a majority share for the equipment and to guarantee the security of operations, while a core group of shareholders retained responsibility for the selection of equipment, expertise, and everything related to the international gateway.


4.36. Given the significant progress that local operators have achieved absent a legal and regulatory structure, the main advice to policymakers is to "do no harm." Imposing artificial limits on market development at this point will be a step backward for the country. New telecommunications law and regulatory structures should emphasize minimal regulation that supports the development of the already competitive market in Somalia in an environment of limited technical capacity to regulate.


4.40. Land Transport. Freight and passenger transport, conducted by trucks, buses, taxis, donkey carts, and tippers, is affordable and links even the remotest villages to the main towns (in the dry season). Trucks travel among villages at regular intervals to supply the population with water, hel , and food and to provide rides (for example, a drive from Burao to Bosaasso costs US$5/person). In the rainy season, most roads are poor or impassable, including portions of tarmac roads.


4.51. Airlines: Thriving but Few Safety Standards. While in the 1980s only the publiclyowned Somali Airlines was allowed to operate (with one aircraft) all domestic and international routes, the airlines sector today is entirely privately owned. In 1997, 14 firms with 62 craft were in operation. The current market is more consolidated, with five operating carriers dominated by Daallo Airlines and using Djibouti, Dubai, and Nairobi as bases of operation. The carriers operate commercial flights, special charters and long-term IFINGO contracts within Somalia, the Middle East, and East and Central Africa, as well as Europe.

4.52. The planes are leased, usually Russian-made, manned by Eastern European crews that include a mechanical engineer in case of faulty operation of the craft during flight. Daallo Airlines wet-leases a Boeing jet from a UK carrier, claiming higher consumer confidence given the lack of government safety regulation in commercial aviation. Prices of Somali carriers are very competitive relative to foreign airlines, about 40 percent less expensive.


4.56. The only regulations currently enforced are those imposed by globalization on airlines, telecommunications providers, and money transfer companies. These are not sufficient to protect domestic consumers and foster economic efficiency.
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