Somalias Economy Expected to Grow Despite Significant Shocks

NAIROBI, November 29, 2022 – Somalia’s economy rebounded with GDP growth of 2.9 percent in 2021, up from a contraction of 0.3 percent in 2020 and 0.5 percent higher than last year’s forecast of 2.4 percent. This, despite significant shocks and factors that muted economic recovery, including delayed elections, drought, supply chain bottlenecks from COVID-19 closures, and increased insecurity.

Somalia is currently experiencing an unprecedented extreme and widespread drought not seen in at least 40 years and after four consecutive seasons of poor rains, 90 percent of the country is experiencing severe drought conditions that include failed crop harvests, widespread water shortages, and decline in livestock production. The drought has intensified the humanitarian crisis and is driving the country to the brink of famine with large displacements of people as they leave their homes in search of food, water, and pasture for their livestock. The situation is being exacerbated by the war in Ukraine which has pushed up global food and oil prices. The higher commodity prices are disproportionally affecting the poor and exacerbating inequality.

“Given the recurrent climatic shocks facing Somalia, the medium-term growth outlook remains highly uncertain, and the case for investments in social protection stronger,” said Kristina Svensson, World Bank Country Manager for Somalia. “We believe that social protection has a key role to play in addressing the widespread poverty and inequality across the country.”

The latest Somalia Economic Update (SEU) report has a special focus on social protection which is seen to have a key role in addressing the widespread poverty and inequality across the country. Given the enormous, untapped potential for improving the human capital of its citizens, Somalia needs to invest in an integrated, shock-responsive, and human capital-oriented social protection system, which protects citizens against risks along the life cycle and promotes inclusive policies.

“By supporting the poor and vulnerable households to meet their basic needs and access to socioeconomic opportunities, the social protection interventions can prevent and mitigate the negative and long-lasting impacts of shocks and chronic poverty,” said Afrah Al-Ahmadi, World Bank Senior Social Protection Specialist. “These investments can also remove the protracted crises on human capital formation and improve individual well-being.”

The report also notes that as Somalia transitions out of fragility, it needs to gradually transition from humanitarian aid to development approaches. A convergence of humanitarian interventions and national social safety net systems, with a shared, if not common, understanding and approach to monitoring and evaluation, policy support, institution building, and operational alignment in areas such as targeting and eligibility, benefit levels, and data exchange, are highly encouraged. This is because in a limited fiscal space context like in Somalia the alignment of the humanitarian safety net with national systems is critical to addressing chronic poverty and building sustainable resilience.

According to the SEU report, if the expected recovery in demand in 2023 is achieved and most of the shocks currently dragging the recovery dissipate, an uptick in consumption and investment, combined with faster growth of Somalia’s trading partners, will lead to a forecast of GDP growth of 3.6 percent in 2023 and 3.7 percent in 2024.

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