Overview

Two and a half decades of conflict, concentrated mainly in southern Somalia, destroyed much of the country’s governance structure, economic infrastructure, and institutions. Following the collapse of the Siad Barre government, in January 1991, Somalia experienced deep cycles of internal conflict that fragmented the country, undermined legitimate institutions, and created widespread vulnerability.

In 2012, a new federal government emerged in Mogadishu within the framework established by the Provisional Constitution. A successful political transition was matched by parallel progress on the security front. With the help of the 22,000-strong African Union Mission to Somalia (AMISOM) force, Somali forces, including aligned clan militia, liberated parts of southern Somalia, including strategic urban centers, from Al Shabaab. Though weakened, Al Shabaab retains significant terrorist capacity and has focused on asymmetric attacks targeting government and international targets. Southern Somalia is still experiencing active conflict. Somaliland and Puntland have remained relatively peaceful, although Al-Shabaab infiltration into Puntland’s mountainous areas has been growing. Following the political transition in 2012 the international community agreed to the Somali Compact with the Federal Government of Somalia (FGS), based on the principles of the New Deal. The Compact, which was agreed to at the Brussels Conference in September 2013, provides an organizing framework (2014-16) for the delivery of assistance to Somalia in line with national priorities and increasingly delivered by Somali institutions.

Economic Development

Somalia’s economy has shown remarkable resilience despite over 24 years of weak and ineffective central government; mainly driven by the private sector. Throughout the years of fragility and conflict, Somalia’s vibrant private sector helped maintain economic activity through provision of money transfer, transport, and telecommunications services. The dearth of statistics continues to make it hard to have a precise estimate of the size of the economy and a number of macroeconomic and social indicators. The World Bank and IMF estimates Somalia’s GDP at about $6 billion in 2015 which is  six times the pre-war period (1985-1990) average of US$1 billion. Consumption remains the key driver of GDP with Gross fixed capital formation accounting for only 8% of GDP in 2015. The economy is highly dependent on imports with the share of exports to GDP being only 14%. Imports account for more than two thirds of GDP, creating a large trade deficit, mainly financed by remittances and international aid. Remittances not only provide a buffer to the economy but also are a lifeline to large segments of the population cushioning household economies and creating a buffer against shocks (drought, trade bans, inter-clan clashes).

Income per capita in Somalia is estimated at $435, making it the fifth poorest country in the world. The country will continue to face large-scale food insecurity between now and June 2016 as a result of poor rainfall and drought conditions in several areas, trade disruption, and a combination of protracted and new population displacement, all of which is exacerbated by chronic poverty. Malnutrition remains high in many parts of the country and nutrition surveys conducted from October to December 2015 by the FAO indicate that over 300,000 children under the age of five are acutely malnourished. Presently, no reliable poverty estimates exist for Somalia, but survey data on consumption expenditures has been collected from a representative sample of households in Mogadishu as well as rural and urban areas of Somaliland and Puntland. The first poverty estimates for Somalia are expected to be published by June 2016.

Last Updated: Apr 09, 2016

World Bank Portfolio and Partnerships

The objective of the Somalia Interim Strategy Note FY14-16 (ISN) is to lay the foundations for poverty reduction and shared prosperity by delivering on selected priorities in the Somali Compact's Peacebuilding and State building Goals. As discussed in the 2011 World Development Report, basic security and political stability are important binding constraints to sustainable poverty reduction in fragile and conflict-affected contexts. The critical measures by which Somalia will address those binding constraints are articulated in the compact and address three key drivers of the country's fragility:

  • The absence of a political consensus on a federal system based on inclusive representation and wealth-sharing among Somalia's communities and regions;
  • The absence of functioning institutions that can deliver basic services to citizens, including security, and manage the economy effectively and transparently;
  • Elite capture and economic exclusion resulting in widespread vulnerability.

The ISN proposes to initiate and scale up a few activities to address these critical issues and thereby to enable poverty reduction and shared prosperity. In aligning with the compact and working in areas of comparative advantage, the World Bank Group (WBG) continues to contribute to a well-coordinated international effort in Somalia, based on partnership between agencies that engage across the interlinked areas of politics, security and development. The ISN's activities are clustered around two priorities:

Priority One: Strengthening Core Economic Institutions

Priority Two: Expanding Economic Opportunity

While highly selective, the ISN program remains flexible, noting both the limitations on effective World Bank Group work in Somalia, as well as the need to remain responsive in a highly fluid context. The selectivity criteria that the Bank has applied in developing the ISN are: (a) alignment with the Compact and the country's binding constraints, (b) alignment with World Bank Group comparative advantage in the Somali context, (c) operational feasibility given security and access, and (d) conflict sensitivity, in particular the need for regional balance. This approach ensures that the Bank focuses scarce resources and capacity in areas of its comparative advantage while also leveraging partnerships for peace- and state-building in other important areas.

The WBG continues to stress a differentiated regional approach, within an emerging national framework. For years, Somalia's donors have dealt with its regions independently of one another. While this approach has been supported by the regions themselves given differentiated needs, it has not fostered a national framework. The WBG's approach under this ISN, in line with the objectives of the compact, will balance a respect for regional differences while supporting the emergence of national foundations through policy and knowledge work and through activities that connect the country. The development of sector programs under the ISN will be based on dialogue with the federal authorities in Mogadishu, as well as with regional authorities responsible for the delivery of services within the regions. Over time, and in line with the emerging constitutional framework, the Bank supports the government to develop a procedure and norms-based system for resource allocation.

Security, improved governance and the political transition remain overriding influences on ISN delivery. The program will need to remain flexible in terms of sector and geography, as well as engagement modality, depending on security, governance and political conditions. Assuming conditions continue to improve in southern Somalia, the WBG will gradually increase its engagement there in line with other international actors. Given historical sensitivities, any increase in Bank programming in southern Somalia should not be at the cost of regional balance. If the situation deteriorates, the Bank will maintain an engagement in areas that are safe and accessible while continuing to invest in knowledge generation, reverting to the approach that the Bank has pursued since 2003.

Last Updated: Apr 09, 2016

The World Bank program in Somalia is largely funded by the Multi-Partner Fund (MPF). The current MPF portfolio focuses on core state functions and socio-economic recovery in Somalia, in line with the Somali Compact Peacebuilding and State building Goals for Economic Foundations (PSG IV) and Revenue and Services (PSG V). By adopting a phased approach to pipeline development and scale-up, the fund can adapt to the dynamic operating context as well as respond to new opportunities as they emerge.

Supporting Reforms

Under PSG V, the MPF has made progress in engaging key government institutions to enhance their role in revenue collection and service delivery. The ‘Troika’ projects of the MPF focusing on core government functions are supporting the Somali authorities to come together to deliver services and support stability and growth in the country. These include the Recurrent Cost & Reform Financing (RCRF) Program, the Public Financial Management (PFM) Reform Project and the Public Sector Capacity Injection Project (CIP).

Over the first year of MPF implementation important steps have been taken in the areas of payroll reform, strengthening of the Somalia Financial Management Information System (SFMIS) as well as efforts to strengthen budget preparation and payment systems. In parallel to process and systems reform, the MPF is engaging with the government to support the development of a professional, high quality and sustainable civil service.  These reforms are being rolled out at the level of the Federal Government and in select sub-national governments in partnership with other stakeholders, notably the Somalia Stability Fund (SSF), to ensure national coverage. Federal and regional government counterparts have begun an important dialogue on intergovernmental fiscal relations, reflecting the emergence of increasingly constructive relations between the federal and regional authorities.

These positive developments, reflecting a new maturity in the national dialogue, informed the first Article IV Consultation by the International Monetary Fund (IMF) in two decades in July 2015 and the initiation of discussions on a potential Staff Monitored Program at the Annual Meetings in Lima in October.

Supporting dialogue

The MPF has started to support the development of a dialogue between the government and the private sector. Recognizing that the Somali economy has reached the limits of growth in an unregulated context, MPF projects under PSG IV are helping to define the role of the government in the development of a sustainable private sector-led economy. The dialogues facilitated through projects in Oil and Gas, Energy and Information and Communication Technologies (ICT) sectors are building an understanding of the benefits to the consumer and to the private sector of improving the regulatory environment as well as of the role of the federal government in supporting regional economic growth. These include Petroleum Sector Inclusive Development, ICT Sector Support (Phase II), and Somalia Power Sector Development Support.

In parallel, projects on private and financial sector development as well as remittances are helping to build systems for improving access to finance: a key constraint to growth. The Somali Core Economic Institutions and Opportunities Program (SCORE) is a long term investment designed to improve the enabling environment for private and financial sector development and catalyze private investment and job creation. In complement, the Project to Support Remittance Flows to Somalia (SRFS) works alongside the Central Bank of Somalia (CBS) to implement a number of activities aimed at tackling key deficiencies affecting the remittance market in Somalia until a sounder financial system is in place.

The MPF pipeline has also served as a platform for defining engagement by the International Finance Corporation in Somalia, which can leverage private capital for further reforms.

Supporting the evidence base

In a context defined by the absence of credible data and information, the MPF portfolio is helping to fill information gaps for evidence-based decision making in targeted sectors. This includes, for example, mapping wind patterns to inform wind power investments, benchmarking regional salary scales for civil servants and advisers and analyzing the use of the telecommunications spectrum to inform a more optimal allocation of frequencies. There is also on ongoing knowledge work initiated by the World Bank before the establishment of the MPF that focuses on poverty data, using High-Frequency Survey methodologies tailored for Somalia and also the “Somalia Economic Update.”

Moving forward, analytical work and data collection will be enhanced under the MPF to provide better information for decision making processes within the government and amongst development partners, including the development of the National Development Plan. 

Last Updated: Apr 09, 2016

The World Bank Somalia portfolio is supported by two trust funds, the Somalia Multi-Partner Fund, a $183 million Multi Donor Trust Fund activated in August 2014 and the State- and Peace-Building Fund (SPF), which has contributed $28.9 million to Somalia since 2012.

Last Updated: Apr 09, 2016


LENDING

Somalia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments