Chapter 4
Economic impact of COVID-19
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The COVID-19 pandemic has created serious disruptions for the global economy. According to the World Bank the pandemic generated ‘the largest economic shock that the world has experienced in decades’.[94] In an optimistic scenario, global GDP is reportedly set to shrink by 5.2%, but the continued circulation of the virus might further worsen these already bleak predictions. As a result, tens of millions of people are set to be thrown into poverty, with a potentially long-lasting negative impact through a reduction in investments, human capital, and productivity. COVID-19 is likely to have a heavy impact on the economy of the Somali territories, a largely informal economy heavily dependent on access to foreign aid and external capital. Throughout spring 2020, estimates on real growth of Somalia’s GDP for 2020 were gradually downgraded, first from 3.2% to 2.3%, and then down to -2.5%.[95] Other forecasts paint an even bleaker picture, with the Economist Intelligence Unit and the FGS itself predicting a downturn of respectively 7% and 11% through 2020.[96]

The aim of this chapter is to investigate in detail how the COVID-19 pandemic has affected the Somali territories’ economy so far. The focus here will be on the major issues faced by the economy, notably: disruptions affecting its supply chains, and the consequent problems of availability and affordability of goods; and the turmoil faced by the informal financial sector, with the ensuing troubles in terms of liquidity, access to credit, and demand. Analysis of these issues will serve as a basis to investigate how COVID-19 has affected the environment in which Somali businesses operate, with a specific focus on the challenges faced by SMEs. These considerations, together with an analysis of the pandemic’s impact on the governments’ budgets, will lay the foundations for the following chapter, which will explore how these shifting dynamics might affect the political economy of Somalia and Somaliland – with important implications for the evolution of conflict dynamics.

4.1 Import constraints

The advent of COVID created serious disruptions to international supply chains around the world – due to a mix of production constraints, particularly in the initial phase of the pandemic, and restrictions to international mobility.[97] The Somali territories’ economy, characterised by a heavy reliance on imports to satisfy domestic consumption,[98] was particularly prone to suffering the consequences of these disruptions, with the impact to be felt by businesses and consumers alike. Aware of this vulnerability, administrations in both Mogadishu and Hargeisa adopted measures to secure the inflow of essential goods. These measures, however, focused mostly on foodstuffs,[99] leaving the economy at large vulnerable to global supply shocks affecting a range of other important goods and creating an advantage for importers over local producers.

As the pandemic swept across the globe, it became increasingly difficult for Somali businesses to import goods from some of their major trade partners. For instance, China – a key supplier of consumer goods[100] – saw its exports to Africa decrease by more than 10% in January and February 2020 as compared to the previous year.[101] At the same time, measures imposed by the Indian government, including quarantines for seafarers and restrictions to international movement, created significant disruptions for the country’s shipping industry[102] – and hence for Somalis, who rely on India for the supply of food staples such as rice.[103] Similarly, the economic slowdown in Turkey affected Somalia’s economy – and especially its construction sector, which relies significantly on materials coming from Turkey and China.[104] To compound the problems faced by Somali businesses in receiving seaborne trade, in mid-March and mid-May respectively Ethiopia and Kenya also decided to shut their land borders to prevent the spread of COVID-19.[105] These measures put a serious strain on the country’s capacity to import essential goods – particularly fruit and vegetables, nearly all of which are imported from Ethiopia.[106] To make things even worse, the situation deteriorated throughout the summer, as political unrest in Ethiopia further reduced cross-border trade with Somalia and Somaliland.[107]

As a result of these supply chain disruptions, the value of Somalia’s reported imports in the first half of 2020 dropped by 17.6% as compared to the previous year (see Figure 3). This drop was particularly stark in April and May, when the value of imports decreased by more than half over a two-month period. This was likely due to the imposition of restrictive measures, both in Somalia and in neighbouring countries, as well as to the delayed impact of shipping disruptions.[108] The decline in imports affected Somaliland too, albeit to a lesser extent, with authorities in Hargeisa reporting a reduction in imports’ value in the first half of 2020 (-11.9% on the previous six months, and -3.3% on the first half of 2019).[109] Overall, although the reliability of import data for Somalia and Somaliland is questionable, these relative variations suggest that COVID-19 had a marked negative impact on the ability of Somali businesses to import the goods that the country’s economy depends on.[110]

Figure 3
Reported imports into the Somali territories, 2019-2020[111]
Reported imports into the Somali territories, 2019-2020

As the pandemic hit the Horn of Africa, sourcing goods abroad became increasingly challenging for Somali businesses. In some cases, goods became temporarily unavailable, forcing importers to find other supply sources or be unable to provide specific goods to their customers.[112] Even when goods were still available, supply times reportedly grew longer, leading to considerable delays as compared to the pre-COVID-19 situation. For instance, a Somali businesswoman indicated that, in the wake of the pandemic, the time needed to import goods from China rose from 6-8 weeks to up to four months.[113] The unpredictability of these delays made things even worse, leading a Somali business owner to comment: ‘The flow of goods has stopped. Even big businesses cannot get their goods on time in the country. They cannot give clients a timeline anymore.’[114] Faced with new challenges in sourcing goods abroad, Somali businesses responded by adopting a range of different strategies. Small retailers active in Hargeisa, for instance, decided to pool their overseas orders in order to save time.[115] At the same time, some airline companies, faced with a sharp reduction in passenger demand, switched their operations from passengers to cargo, responding to increased domestic demand in light of the longer shipping times.[116] In general, respondents seemed to indicate that ‘you have to find creative ways to get supplies into Somalia and ways to finance them’.[117]

It is important to note, however, that supply chain disruptions did not impact all businesses in the same way. Having leaner stockpiles and less possibilities to diversify their sources, small businesses were disproportionately affected.[118] By contrast, increasing scarcity has been a favourable development for larger importers who were able to build significant stocks ahead of COVID-19 slowdowns at major sourcing destinations, allowing traders to charge significantly higher prices when, for instance, shipments of electronics temporarily stopped.[119] Moreover, several larger traders have been able to realign major trade relations, avoiding significant delays (notably in the UAE and China) by sourcing from Turkey, South Korea or trans-shipment in Djibouti.[120] The impact of COVID-induced supply shocks was also different across different sectors of the Somali economy. For instance, the value of foodstuff imports briefly rose in March 2020, before witnessing a fall in the second quarter, partly as the result of reduced imports from India (see Figure 4).[121] By contrast, the value of imported luxury items, especially vehicles, followed a markedly different pattern, falling in early 2020 and then picking up after April – thus suggesting that, despite an initial shock, the luxury market has been able to (at least partly) recover (see Figure 5). While many traders in luxury items nevertheless faced declining revenues, for some niche businesses in the luxury sector the COVID-19 pandemic even presented itself as an opportunity.[122] For instance, an importer of cars said that demand significantly rose during the pandemic. As trade and travel restrictions prevented their customers from making purchases abroad themselves, her company effectively became the only way of importing in her segment.[123] However, such examples seem to relate mostly to businesses that serve a small fraction of the Somali market – i.e. affluent Somalis whose purchasing power has not been greatly affected by the COVID crisis.

Figure 4
Reported imports of foodstuffs in the Somali territories[124]
Reported imports of foodstuffs in the Somali territories
Figure 5
Reported imports of luxury goods in the Somali territories[125]
Reported imports of luxury goods in the Somali territories

Given the Somali territories’ heavy reliance on imports for a wide range of consumer goods, the disruptions described above could reverberate down to retail levels, showing up eventually in the form of price hikes for consumers. In order to prevent such price hikes, in mid-April administrations in both Mogadishu and Hargeisa implemented significant tax exemptions on foodstuffs, fully or partially waiving import taxes on staples such as rice, dates, wheat flour, cooking oil, sugar and pasta.[126] Moreover, the FGS sought to strike deals with FMSs to eliminate taxation on internal transport, and it attempted to tighten its control on businesses to prevent price gouging.[127] These measures did reportedly prevent – or at least limit – price hikes for some products in specific areas, as exemplified by the rather stable price of rice in Mogadishu.[128] However, as the pandemic spread throughout the Somali territories, the price of cereal products – both locally sourced (sorghum, maize, pasta) and imported (rice, wheat flour) – did rise across most regions (see Figures 6 and 7).[129] In addition, weakening trade flows with Ethiopia (the main supplier of fruit and vegetables) – due both to the spread of COVID-19 in the region and to the growing political unrest in Ethiopia – resulted in large temporary price hikes for fruit and vegetables, as exemplified by the temporary tripling of the price of tomatoes in Hargeisa’s markets.[130]

Figure 6
Average price of selected domestic cereal products[131]
Average price of selected domestic cereal products
Figure 7
Average price of selected imported cereal products[132]
Average price of selected imported cereal products

Besides foodstuffs, price hikes were also noted in other sectors, where price gouging was reportedly more widespread than for food.[133] Most evidently, prices of hand sanitisers, soap and protective equipment such as face masks skyrocketed, as the COVID-19 outbreak drove up demand.[134] Moreover, prices also increased in the electronics sector – according to some reports, due to the decision of a few big companies to keep large volumes of goods in storage until prices rose.[135] The most – if not the only – notable exception to the general rise in prices was fuel, the price of which did not vary significantly throughout the crisis. This, however, was due to the exceptional circumstances faced by global oil and gas markets, with extremely low prices throughout spring 2020.[136]

Although it is possible to observe a general rise in price levels since the outbreak of COVID-19, it is important to note that price dynamics in the Somali territories, especially in the domain of food, have displayed a large degree of cross-regional variability. The price of homegrown food staples, for instance, has varied according to region-specific factors such as climatic conditions, security issues, and carryovers from previous harvests.[137] Similarly, price dynamics for imported goods have been different in each region, due to differences in transport costs across regions (i.e. checkpoint fees levied by governmental authorities or by Al-Shabaab),[138] as well as to the specific measures enacted by different levels of administration.[139] Examples of the ensuing price variability can be seen in Figures 8 and 9, which show price levels over time for two food staples - homegrown sorghum and imported rice – across three different regions.[140] Given this variability, broad trends across the Somali territories might be interesting to observe to gain a more comprehensive overview, but caution should be used when drawing general conclusions about processes taking place in the territories as a whole.

Figure 8
Price of sorghum (homegrown) in selected Somali regions[141]
Price of sorghum (homegrown) in selected Somali regions
Figure 9
Price of rice (imported) in selected Somali regions[142]
Price of rice (imported) in selected Somali regions

4.2 Remittances and liquidity

Besides the disruption of supply chains and the consequent alterations in the price of goods, the advent of COVID-19 has also had an impact on liquidity in the Somali territories. In the absence of fully functioning central banks and well-developed formal banking systems,[143] over the past decades an informal system has guaranteed the smooth functioning of the economy in the Somali territories. A major pillar standing at the base of this informal architecture is the value of remittances sent by the Somali diaspora worldwide. Remittance inflows into the Somali territories are estimated to be worth between 1.3 and 2 billion US dollars each year.[144] This large amount of money, which surpasses the value of formal direct investment (FDI) inflows and amounts to around a third of Somalia’s USD 4.9 billion GDP, is important for the economy in three main ways. First and foremost, remittances function as a safety net for many Somalis who depend on this extra source of income, and in many cases are able to improve their access to food and other basic needs based on it.[145] Overall, remittances have been credited for having a stabilising role in past crises in the country.[146] In addition, the Somali territories’ economy is dollarized and heavily dependent on remittances to buy goods abroad in foreign currency; in this context, remittances are crucial in ensuring the flow of goods into the import-dependent Somali economy, which is in constant need of hard currency.[147] Lastly, remittances can also be important for recipients due to their role in improving access to credit. On some occasions SMEs have used remittances as investments for their business.[148]

While remittances are extremely important for the functioning of the economy in the Somali territories, transferring funds into Somalia and Somaliland is not a straightforward enterprise. To get such large amounts of financial flows into the country in the absence of a strong formal banking system connected to the international banking system, Somalis tend to rely on MTOs and the hawala system.[149] MTOs facilitate money transfers through their affiliated agents in Somalia to recipients inside Somalia. Inflows to recipients are offset by an outflow where MTOs finance traders’ imports from third countries through what is known as the franco valuta system.[150] In this way, the transfers of Somali companies purchasing goods abroad (outflow) are offset by remittances (inflow). If imbalances between branches arise, they have to be rebalanced by transferring cash physically to keep the system functioning. As one interviewed researcher put it: ‘The money is often transported in bags. To reduce cash transport in bags, what is usually done is this: When I send money to Somalia, this money does not necessarily go there. Agencies try to find a business who buys in dollars and use that money.’

As the COVID-19 pandemic spread across the globe, however, the franco valuta system used by Somalis to ensure the functioning of their economy started to experience significant difficulties. First of all, the pandemic ravaged the economies of wealthy states hosting large numbers of the Somali diaspora, most notably the United States and the United Kingdom. As a result, diaspora members suddenly found themselves in difficult economic conditions. This drastically reduced their capacity to send remittances, thus exacerbating the crisis faced by recipient households and businesses in Somalia and Somaliland. Remittance recipients, in urban and rural settings alike, reported a 10-30% drop in the value of remittances received as compared to before the pandemic.[151] Other estimates paint an even bleaker picture, with reports of remittances declining by up to 50-60% in certain corridors.[152] To add to the problem, the pandemic also disrupted the logistical arrangements used to rebalance flows. When international flights came to an abrupt stop at the beginning of the COVID 19 pandemic, this impacted airlines’ ability to fly cash into Somali territory, a vital component for the informal payments system to work. It also disrupted the ability of Somali businesses to purchase goods in business hubs abroad. As a result, restrictions on transferring funds tightened, which put further downward pressure on the amount of money available at the end of the financial transfer.[153] ‘With the COVID crisis, the system broke: [] the company was not getting enough liquidity. [Recipients] could not get the money out.’[154] These dynamics meant that it was harder for recipients to cash out on the funds that were being sent to them. While it is beyond the scope of this report to quantify the changes in remittance flows in the wake of the COVID-19 pandemic, the available estimates suggest that the impact has been marked.

This drop in remittances led to serious liquidity problems for the economy of the Somali territories, with a heavy impact on the ability of SMEs to gain much-needed access to credit. Under financial pressure due to the overall economic effects of the pandemic, SMEs sought to access working capital to keep their business running. However, as remittances fell and liquidity dried up, lenders increasingly focused their operations on a restricted number of clients. As an employee of a large multinational money transfer company said: ‘Existing clients with good historical relations are ring-fenced. Even these clients do not get as much as before. The others – new or recent clients – won’t get loans, and there aren’t other sources where businesses can get finance.’ As a result, SMEs – which already faced difficulties in securing formal access to credit prior to the COVID-19 outbreak – found themselves under further pressure. This situation lays bare a pre-existing issue of access to finance that plagues SMEs in the Somali territories, but equally in other fragile and conflict-affected settings around the world.

The importance of social capital in such contexts, in order to either secure a loan through connections or to be able to fall back on an informal way to access capital, has been widely documented by literature.[155] The formal and informal sides of access to credit can be intertwined in the Somali territories, as one Somali researcher explained: ‘If you want loan from banks, you need to give collateral. Banks here don’t trust collateral, but rather they accept guarantees (that are obtained through social networks). It varies from bank to bank. If you need a loan you need a guarantor, which makes you need a social network and you have to be trusted. Some banks only trust guarantors that are shareholders in a sister company. You then need to look for someone who has a share in a company, talk to them. You need access, you need trust. Not everybody has that access.’ The need for a guarantor with sufficient social status, or the practice of collateralizing assets held by trusted acquaintances, leads to the financial exclusion of certain groups (especially women, young people and the lesser clans) with potentially viable businesses but weaker social ties.[156]

In response to the shrinking space for getting formal credit, many SMEs turned to the informal credit system, which is based on one’s personal network and on trust relations that an entrepreneur has established within that network. Several business owners indicated, however, that such avenues for financing their business have also become extremely hard to access, with more wealthy members of their networks reducing their exposure to what they see as risky investments in a potentially worsening economic environment in which their other investments are underperforming.[157] This signals that the difficulty of obtaining credit was not only impacting new businesses – a situation that existed prior to the pandemic – but also impacted the access to working capital for thriving businesses.

Besides liquidity and credit issues, the drop in remittances has also had an impact on demand in the Somali territories, since households that were dependent on those remittances suddenly found their buying power reduced. This, coupled with a reduction of income due to the overall economic slowdown and the restrictions imposed by the governments, significantly affected demand for goods and services. This is reflected in the estimates of the FGS, which as of June 2020 reported a 25% drop in private consumption expenditure in Somalia.[158] Respondents interviewed for this study point out that the most affected sectors were (air) transport services and the hospitality sector – an assessment largely confirmed by a business survey report published by Somaliland’s government.[159] In addition, businesses selling electrical and electronic appliances were also particularly badly hit, with postponed spending and a decline in demand disproportionately affecting these sectors.[160]

A particular dynamic is observed in the livestock sector. Annual livestock exports to Saudi Arabia during the Hajj represent the second biggest source of hard currency for Somalis after remittances, playing an even more important role in Somaliland and Puntland.[161] Livestock exports are estimated to account for 50% to 75% of the total value of exports and typically peak in the run-up to the Hajj due to increased demand.[162] The limitation of this year’s Hajj to 1,000 pilgrims instead of the usual 2.5 million, however, threatened to generate a demand drop from Somalia’s main export destination for livestock.[163] This threatened the pastoral economy. Pastoralists depend on the informal credit systems through which they buy food and other necessities in urban hubs, and risked facing difficulties in paying back wholesalers, thus affecting other sectors as well.[164] For pastoralists who depend on yearly exports to the Gulf for most of their income, the cancellation of the majority of livestock exports could have had catastrophic consequences and saddled them with significant debt. Data on price levels suggests, however, that demand, including external demand, was sustained at normal price levels.[165] Diversification in order to satisfy increased demand from Oman and other Gulf countries during Ramadhan, as well as Saudi Arabia’s decision to temporary lift its ban on Somali livestock in April 2020, appear to have made up for part of the decline in Hajj-related exports.[166]

4.3 Impact on government revenues

Besides taking a serious toll on the economy of the Somali territories and its SMEs, COVID-19 has also significantly affected the budget of the administrations in Mogadishu and Hargeisa. Traditionally, both administrations have been heavily dependent on Somalia’s connections with the outside world. As for the FGS, around 30% of the government’s 2019 revenue came from taxes on international trade (mostly imports), and a further 15% came from budget lines depending on Somalia’s links with the outside world (e.g. visa and passport charges, concession fees for Mogadishu’s port and airport, overflight fees).[167] A similar situation can be seen in Somaliland, whose government planned to collect over 50% of its 2020 revenues through taxes on international trade and (to a much lesser extent) port fees.[168]

As the pandemic put a halt to the cross-border flows of goods and people, the ability of Somali administrations to mobilise resources thus came under strain. Throughout the first half of 2020, the FGS’ income from taxes on international trade dropped by approximately a third, picking up only very slightly in the third quarter.[169] The sudden disappearance of revenues from the import of khat, which was banned by the government to prevent the spread of COVID-19, contributed to the decrease in revenues since March.[170] Adding to this strain, the tax relief measures implemented by the FGS to ensure the affordability of foodstuffs put further pressure on the government’s coffers. While the FGS tried to make up for the losses by raising taxes on other goods, such as plastic bags, cosmetics and tobacco products,[171] the net effect of COVID-19 on the FGS’ tax revenues has proved to be negative.[172] As a result, the amount of overall domestic revenues collected by the FGS since the advent of COVID-19 was 10.6% below the previous year’s level (see Figure 10).[173] Albeit to a lesser extent, the coffers of Somaliland’s government also felt the impact of COVID-19. As of June 2020, the actual value of taxes collected on international trade fell short of expectations by SlSh 77 trillion (i.e. 7.6% of the administration’s overall budget). This drove down the administration’s overall revenues, which as of June 2020 were 9.6% below their expected value (see Figure 11).[174]

Figure 10
FGS revenues in 2019-2020, by source, by quarter[175]
FGS revenues in 2019-2020, by source, by quarter
Figure 11
Somaliland revenues in 2020, by source, expected vs. actual[176]
Somaliland revenues in 2020, by source, expected vs. actual

While COVID-19 imposed similar challenges to both the FGS and Somaliland’s government, most notably in terms of reduced revenues and increased expenditure needs, the way in which the two administrations handled these financial constraints was markedly different. In Hargeisa, the administration adopted a rather prudent approach to expenditure, which reportedly even fell short of the budget target for the first half of the year.[177] The response to COVID in Somaliland was financed through a mix of public funds and support from the local business community – as exemplified by the Somaliland Fundraising Committee for COVID-19, which sought to combine a government contribution of USD 1 million with an additional 2 million to be raised from Somaliland’s business community.[178] Similar synergies between the public and the private sector could also be seen in Mogadishu, where the FGS closely interacted with major businesses in order to coordinate the response to COVID-19.[179] However, in addition to domestic sources of revenue, the government in Mogadishu was able to also rely on a major increase in financial support from the international community, and especially from multilateral donors such as the World Bank.[180] Over the first nine months of 2020, the FGS’ donor revenues increased by more than 160% as compared to the previous year, bringing into the government coffers USD 190 million (i.e. 56% of the FGS' overall revenues in the same period).[181] This major increase in foreign financial support, however, came at a time when – with increased logistical constraints and less international presence on the ground due to the COVID-19 pandemic – oversight mechanisms on donor funds had come under serious strain.[182] This reportedly created openings for misappropriation of funds, which has the potential to affect the complex political economy of Somalia’s aid sector.[183]

4.4 Conclusion

The advent of COVID-19 has taken a serious toll on the economy of the Somali territories. First, the disruptions in supply chains across the world – and especially in countries such as China, India, Turkey and Ethiopia – have made it increasingly difficult for Somali businesses, especially smaller ones, to source the imports that the economy relies on. As a result, consumers at the end of the supply chain have witnessed an rise in prices for most goods, which were especially pronounced in COVID-related protective gear, electronics and (to a lesser, but still significant, extent) foodstuffs.

At the same time, the pandemic has disrupted the complex, informal financial system that Somalis rely on. Due to a combination of economic distress in the Somali diaspora and restrictions on international mobility, remittance flows declined and the Somali informal financial system temporarily broke down. As a result, the economy of the Somali territories experienced a liquidity crisis, and businesses – especially, once again, smaller ones – faced even more challenges than usual in accessing credit. To compound the problem, government restrictions, declining remittances and reduced income due to the overall economic slowdown drove down demand, further exacerbating the troubles faced by Somali businesses.

Government coffers were not spared by COVID-19. As the cross-border flow of goods and people to and from Somalia came to a halt, the domestic revenues of administrations in both Mogadishu and Hargeisa decreased significantly in the first half of 2020. Both the FGS and Somaliland’s government acted in coordination with local business communities to implement their responses to COVID-19. In addition to this local cooperation, the FGS also addressed its fiscal challenges by markedly increasing its reliance on external donors – an option not available to the administration in Hargeisa. While this foreign support might have provided some fiscal relief in the short run, this large inflow of donor revenues has come at a time of reduced oversight on the use of such resources, thus potentially opening the door to misappropriations.

Overall, therefore, the pandemic has the potential to significantly change the complex political economy of Somalia and Somaliland, with important implications for their stability. The economic crisis brought about by COVID-19 is taking a much larger toll on smaller and newer businesses, likely reinforcing the (already dominant) position of the big players in the Somali market. At the same time, the FGS’ increasing reliance on external support, coupled with a particularly low level of oversight on donor projects and the upcoming electoral cycle, has the potential to affect the complex mechanisms of Somalia’s aid sector. The next chapter will thus investigate how these shifting economic and political dynamics might affect the conflict dynamics in the Somali territories.

World Bank. 2020. Global Economic Prospects, Washington DC: The World Bank Group.
World Bank. 2020. Somalia Country Update (April 2020), Macro Poverty Outlook, Washington DC; United Nations Office for the Coordination of Humanitarian Affairs. 2020. Somalia Country Preparedness and Response Plan, 20.
Economist Intelligence Unit. 2020. Somalia Country Report, London: The Economist; United Nations Office for the Coordination of Humanitarian Affairs. 2020. Somalia Country Preparedness and Response Plan, 3.
Seric, A. et al. 2020. ‘Managing COVID-19: How the pandemic disrupts global value chains’, World Economic Forum, 27 April 2020, link (accessed 7 December 2020); World Trade Organization. 2020. Cross-border mobility, COVID-19 and global trade, Information Note, Geneva: WTO; Organisation for Economic Co-operation and Development. 2020. COVID-19 and global value chains: Policy options to build more resilient production networks, OECD Policy Responses to COVID-19; Meester, J. and Ooijens, M. 2020. COVID-19 Impact on the Value Chain – Conceptual paper, CRU Policy Brief, The Hague: Clingendael Institute.
It has been estimated that 80% of the Somali economy depends on imports, and in 2019 the value of imports was even higher than the value of the country’s GDP (International Monetary Fund. 2020. Somalia, IMF Country Report No. 20/85, 26; Phone interview with an official from a large MTO, Hargeisa, August 2020; Phone interview with a Somali entrepreneur in the fisheries sector, London, August 2020; Phone interview with a researcher, Nairobi, August 2020).
Measures taken by the FGS included a 100% tax exemption on rice and dates, as well as a 50% tax exemption on wheat flour and cooking oil. Measures taken by Somaliland’s administration consisted of a 20% tax exemption on the imports of wheat flour, cooking oil, sugar and pasta (Food Security and Nutrition Analysis Unit Somalia. 2020. ‘Somalia 2020 Post Gu Food Security and Nutrition Outcomes and Projections’, Briefing for Stakeholders, link (accessed 7 December 2020); Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020).
In 2018, imports from China reportedly made up 18-19% of Somalia’s overall imports. Of the USD 642 million of imports recorded in that year, almost half were consumer goods (World Bank. 2020. ‘World Integrated Trade Solutions – Data’, link (accessed 7 December 2020); elaboration by the authors).
Seric, A. et al. 2020. ‘Managing COVID-19: How the pandemic disrupts global value chains’, World Economic Forum, 27 April 2020, link (accessed 7 December 2020).
Mujawar, M. 2020. ‘COVID-19 impact: Many Indian sailors eager to board ship; scores of others desperate to return home’, CNBC, 25 June 2020, link (accessed 7 December 2020); respondents for this study suggested in particular that the quarantine for seafarers created delays in Indian supplies to Somalia (Phone interview with a researcher, Nairobi, August 2020). India is Somalia’s third largest trading partner and imports from India are mainly staples such as rice and sugar.
In 2018, imports from India reportedly made up 12% of Somalia’s overall reported imports. Most of these imports consisted of vegetables (30%) and food products (23%) (World Bank. 2020. ‘World Integrated Trade Solutions – Data’, link (accessed 7 December 2020); elaboration by the authors). Although the Indian government did not implement any export restrictions in the domain of food, on 3 April 3 Indian rice traders decided to suspend the signing of new export contracts (International Trade Centre. 2020. ‘Market Access Map’, link (accessed 7 December 2020)).
Phone interview with a Somali researcher, London, September 2020; Phone interview with an employee at FGS’ Prime Minister’s Office, Mogadishu, October 2020; World Bank. 2020. ‘World Integrated Trade Solutions – Data’, link (accessed 7 December 2020); elaboration by the authors.
Gebre, S. ‘Ethiopia closes land border, deploys troops to combat virus’, Bloomberg World, 23 March 2020, link (accessed 7 December 2020); Reuters. 2020. ‘Kenya closes borders to Tanzania and Somalia over coronavirus’, 16 May 2020, link (accessed 7 December 2020). The land border closures with Kenya and Ethiopia, with some exceptions for the transit of goods; however, cross-border trade was reportedly affected nevertheless (United Nations Office for the Coordination of Humanitarian Affairs. 2020. Somalia: COVID-19 Impact Update No. 10, 22 July 2020).
As of 2016, over 95% of the edible vegetables imported by Somalia came from Ethiopia (Gebresenbet, F. 2018. ‘Perishable state-making: Vegetable trade between self-governance and ethnic entitlement in Jigjiga, Ethiopia’, DIIS Working Paper, No. 2018:1, 9-10).
Phone interview with an official from a large MTO, Hargeisa, August 2020; Phone interview with a business trainer, Hargeisa, September 2020.
Large container vessels that had already started their multi-week journey towards Somalia before the implementation of quarantine measures might have completed their shipments. Therefore, it is likely that disruptions in shipping have led to a delay with respect to the imposition of quarantine measures in countries such as China and India (Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020).
Data from Somaliland’s government (Republic of Somaliland. Ministry of Finance Development. 2020. ‘Reports’, link (accessed 7 December 2020)); elaboration by the authors.
Data from Comtrade database (United Nations Statistics Division. ‘UN Comtrade Database’, link (accessed 16 November 2020)); elaboration by the authors. The Comtrade database does not make explicit whether data for Somaliland is included. However, the UN generally considers Somaliland as part of Somalia, and hence includes data for Somaliland in its Somalia data (for instance, see: United Nations Office for the Coordination of Humanitarian Affairs and Federal Government of Somalia. 2020. ‘COVID-19 Response in Somalia’, link (accessed 7 December 2020)).
Phone interview with a business trainer, Hargeisa, September 2020. Specific observations pointed to cigarettes of certain brand not being available for a short period of time, or to the time to order goods from retailers increasing dramatically, pointing to supply chain issues gradually having penetrated the entire supply chain.
Phone interview with a Somali entrepreneur in the fisheries sector, London, August 2020.
Phone interview with an official from a large MTO, Hargeisa, August 2020.
Phone interview with a business trainer, Hargeisa, September 2020.
Phone interview with an entrepreneur in the Somali aviation sector, Dubai, September 2020.
Phone interview with a business trainer, Hargeisa, September 2020.
Phone interviews with a business trader and an official from a large MTO in Hargeisa, as well as a researcher in Nairobi and another in London, August-September 2020.
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020.
Phone interviews with an employee from a large business in the luxury sector in Hargeisa and with a trader in the foodstuffs import sector in Kismayo, September-October 2020.
The Q2 fall reported by the Comtrade data also depends on the sudden fall to zero of foodstuff imports from Turkey in May 2020. This latter drop, however, is likely due to delays in Turkey’s reporting of trade data. At the same time, it is also worth noting that vegetable imports in Q2 are likely to have fallen more than what is reported by Comtrade, due to reduced imports from Ethiopia (Phone interview with an official from a large MTO, Hargeisa, August 2020; Phone interview with a business trainer, Hargeisa, September 2020) that are not captured in the Comtrade database.
Phone interviews with an employee from a large business in the luxury sector and with a business trainer in Hargeisa, September 2020.
Phone interview with an employee from a large business in the luxury sector, Hargeisa, September 2020.
United Nations Statistics Division. ‘UN Comtrade Database’, link (accessed 16 November 2020); elaboration by the authors.
Ibid.
Measures taken by the FGS included a 100% tax exemption on rice and dates (since the period leading up to Ramadhan), as well as a 50% tax exemption on wheat flour and cooking oil. Measures taken by Somaliland’s administration consisted of a 20% tax exemption on the imports of wheat flour, cooking oil, sugar and pasta. Sources: Food Security and Nutrition Analysis Unit Somalia. 2020. ‘Somalia 2020 Post Gu Food Security and Nutrition Outcomes and Projections’, Briefing for Stakeholders, link (accessed 7 December 2020); Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020.
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020; Phone interview with an employee at FGS’ Prime Minister Office, Mogadishu, October 2020.
Rice and wheat prices in Benadir region were rather stable throughout spring 2020 (World Food Programme. 2020. ‘Somalia – Food Prices’, Humanitarian Data Exchange, link (accessed 17 November 2020); Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020). As for Somaliland, it is impossible to assess the effectiveness of the measures implemented in Somaliland due to lack of available data.
Phone interview with an official from a large MTO, Hargeisa, August 2020; Phone interview with a business trainer, Hargeisa, September 2020; Phone interview with an employee from a large business in the luxury sector, Hargeisa, September 2020.
Ibid.
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020.
A few examples of reported price hikes for protective equipment: +318% in Somaliland; +223% in Puntland; +153% in Galmudug (United Nations Office for the Coordination of Humanitarian Affairs. 2020. Somalia: Update 2 – Overview of COVID-19 directives).
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020.
Food Security and Nutrition Analysis Unit Somalia. 2020. ‘Market Updates’, link (accessed 7 December 2020).
Respondents pointed to the fact that food prices tend to be higher in regions that are far away from key ports where food is imported, most notably due to transport costs (Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020; Phone interview with an employee at FGS’ Prime Minister Office, Mogadishu, October 2020).
For instance, the tax breaks on the import of food staples implemented by the FGS had an effect only in the Benadir region. This can be observed in the World Food Programme database (see above), and has been confirmed both by some respondents to this study (Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020) and by UN OCHA reports (United Nations Office for the Coordination of Humanitarian Affairs. 2020. Somalia: Update 2 – Overview of COVID-19 directives).
Three regions have been chosen here: North-East (Bari, Nugaal, Sool, Sanaag), Sorghum Belt (Hiraan, Bakool, Bay, Gedo), and Benadir (classification adopted by FSNAU). The choice of these three regions has been motivated by the fact that they expose different features that allow for interesting comparisons. The Sorghum Belt region relies more on its own agricultural production (sorghum), which is by contrast scarcer in the North-East. Benadir is an interesting case not only because it is very reliant on food imports, but also because it is the region of the capital Mogadishu, where the FGS has at least a degree of control.
Ibid.
In the case of Somalia, for instance, while the Central Bank of Somalia was re-established in 2012, it still faces numerous challenges such as control over the exchange rate and the supply of Somali shillings, as well as fragmentation throughout the different Somali territories (El Taraboulsi-McCarthy, S. 2018. ‘The challenge of informality: Counter-terrorism, bank de-risking and financial access for humanitarian organisations in Somalia’, HPG Working Paper, 5). For a broader overview of the banking sector in the Somali territories, see: Owuor, V. 2013. Somalia Banking: Transfers, Challenges and Opportunities, Shuraako.
International Organization for Migration. 2020. ‘Expected 40 percent Drop in Remittances Threatens Somalia’s Most Vulnerable’, Medium, 15 June 2020, link (accessed 8 December 2020); Majid, N. et al. 2020. ‘How will remittances affect the Somali COVID-19 response?’, LSE Conflict Research Programme Blog, 7 April 2020, link (accessed 8 December 2020); Phone interview with a researcher, Nairobi, August 2020.
Majid, N., Abdirahman, K. and Hassan, S. 2018. Remittances and Vulnerability in Somalia, RVI Briefing, Nairobi: Rift Valley Institute, 3.
El Taraboulsi-McCarthy, S. 2018. ‘The challenge of informality: Counter-terrorism, bank de-risking and financial access for humanitarian organisations in Somalia’, HPG Working Paper, 6.
This is notwithstanding the fact that the Somali Shilling has appreciated enormously against the dollar since a decades-long inflationary spiral ended in the late 2000s.
Majid, N., Abdirahman, K. and Hassan, S. 2017. Remittances and Vulnerability in Somalia; Assessing sources, uses and delivery mechanisms, RVI Report, Nairobi: Rift Valley Institute, 6, 26-28. For instance, a respondent to this study said: ‘I get 300 dollars every month from my brother, but he is no longer able to send that money now. Therefore, I can’t run the business that I was running’ (Phone interview with a Somali entrepreneur in the fisheries sector, London, August 2020).
El Taraboulsi-McCarthy, S. 2018. ‘The challenge of informality: Counter-terrorism, bank de-risking and financial access for humanitarian organisations in Somalia’, HPG Working Paper, 5-8.
The franco valuta system had emerged in Somalia even before the collapse of the Somali state in 1991 (Musa, A.M. 2019 ‘From trust to oligopoly: Institutional change in livestock trade in Somaliland after 1991’, DIIS Working Paper, 13). However, while at the time the system was predominantly managed by individual senders of remittances or groups of them, now it seems that the same mechanism is used by MTOs.
Food Security and Nutrition Analysis Unit Somalia. 2020. ‘Somalia 2020 Post Gu Food Security and Nutrition Outcomes and Projections’, Briefing for Stakeholders, link (accessed 7 December 2020).
Phone interview with a Somali researcher, London; Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020.
Phone interview with a Somali researcher, London.
Hoffmann, A. and Lange, P. 2016. Growing or Coping? Evidence from small and medium sized enterprises in fragile settings, CRU Report, The Hague: Clingendael Institute.
Phone interview with a business consultant, Hargeisa, November 2020.
Phone interview with a Somali entrepreneur in the fisheries sector, London, August 2020; Phone interview with a researcher, Nairobi, August 2020.
Ibrahim, A. 2020. ‘State-building and COVID-19 in Somalia: Impact on government revenues’, LSE Conflict Research Programme Blog, 2 September 2020, link (accessed 8 December 2020).
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020; Phone interview with a business trainer, Hargeisa, September 2020; Republic of Somaliland. Ministry of Finance and Development. 2020. Business Impact of COVID-19 Survey, Central Statistics Department Report.
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020; Phone interview with a business trainer, Hargeisa, September 2020.
For Somaliland, see: Musa, A.M., Wasonga, O.V. and Mtimet, N. 2020. ‘Factors influencing livestock export in Somaliland’s terminal markets’, Pastoralism 10(1), 1-13. For Puntland, see: Majid, N. 2010. Livestock Trade in the Djibouti, Somali and Ethiopian Borderlands, Chatham House Africa Programme Briefing Paper, 18.
Observatory of Economic Complexity. 2020. ‘Somalia’, link (accessed 8 December 2020); World Bank and United Nations Food and Agriculture Organization. 2018. Rebuilding Resilient and Sustainable Agriculture in Somalia, Somalia Country Economic Memorandum Volume I, 45-78.
Faruk, O. and Bearak, M. 2020. ‘With drastically smaller hajj, Somalia’s livestock industry goes from “boom to doom’’’, The Washington Post, 28 July 2020, link (accessed 8 December 2020).
Phone interview with a researcher, Nairobi, August 2020.
Phone interview with a researcher, Nairobi, August 2020; Phone interview with a trader in the livestock export sector, Kismayo, October 2020; Duale, M. 2020. ‘Saudi Arabia lifts ban on Somalia’s livestock imports’, The Horn Diplomat, 19 April 2020, link (accessed 8 December 2020).
Federal Government of Somalia. Ministry of Finance. 2020. ‘Financial Statements 2019’ and ‘Financial Statements 2020’, link (accessed 16 November 2020); elaboration by the authors.
Republic of Somaliland. Ministry of Finance Development. 2019. Citizen’s Budget 2020; Republic of Somaliland. Ministry of Finance Development. 2020. Macroeconomic and Fiscal Framework.
Federal Government of Somalia. Ministry of Finance. 2020. ‘Financial Statements 2019’ and ‘Financial Statements 2020’, link (accessed 16 November 2020); elaboration by the authors. As seen above, taxes on international trade are particularly important because they make up a large share of the FGS’ revenues (in 2019, almost a third of the government’s overall revenue, including both domestic and foreign sources).
Phone interview with a civil servant at the FGS’ Ministry of Finance, Mogadishu, September 2020.
The amount of tax revenues collected by the FGS between January and September 2020 was 10% lower than the amount collected in the same period of 2019.
Republic of Somaliland. Ministry of Finance Development. 2020. Macroeconomic and Fiscal Framework.
Federal Government of Somalia. Ministry of Finance. 2020. ‘Financial Statements 2019’ and ‘Financial Statements 2020’, link (accessed 16 November 2020); elaboration by the authors.
Republic of Somaliland. Ministry of Finance Development. 2020. Macroeconomic and Fiscal Framework.
Expenditure was reportedly 16% below target for the first half of 2020 (Republic of Somaliland. Ministry of Finance Development. 2020. Macroeconomic and Fiscal Framework).
United Nations Office for the Coordination of Humanitarian Affairs. 2020. Somalia: COVID-19 Impact Update No. 5, 12 May 2020.
Major business conglomerates like Hormuud and Dahabshiil, as well as the Somali Chamber of Commerce, worked alongside Somali administrations to develop a response to the crisis (Phone interview with an employee at FGS’ Prime Minister’s Office, Mogadishu, October 2020).
Interestingly, the FGS’ revised 2020 budget had foreseen an even higher increase in donor revenues, hoping to raise USD 410 million over the whole of 2020. This clearly indicates the extent to which the FGS had planned to rely on its international partners in order to face the pandemic. Source: Federal Government of Somalia. Ministry of Finance. 2020. ‘Financial Statements 2019’ and ‘Financial Statements 2020’, link (accessed 16 November 2020); elaboration by the authors.
Some respondents clearly pointed to an increase in corruption since the advent of COVID-19, which was blamed on the fact that the crisis has diverted attention away from oversight mechanisms. One of the respondents clearly stated: ‘Transparency has gone down; corruption has gone up. Attention is elsewhere. Donors and the private sector are not paying attention to what is going wrong.’ (Phone interview with a Somali entrepreneur in the fisheries sector, London, August 2020; Phone interview with a business trainer, Hargeisa, September 2020).
On the dangers arising from a massive influx of money into Somalia in these times of crisis, see for instance: Elder, C. 2020. ‘The humanitarian response to COVID-19 in Somalia will increase capital flight and violent conflict’, LSE Africa Blog, 30 April 2020, link (accessed 8 December 2020).
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