The “hidden hand” Behind the Resilience of the Stateless Economy of Somalia.

1. The “hidden hand” Behind the Resilience of the Stateless Economy of Somalia. By Willis C. Jordan

2. Introduction • This paper looks at the disappearance of institutions within Somalia. • It argues that the informal market that sustained private sector activities under the repressive policies of Siad Barre’s government has provided a functioning system to the economy. • Since the fall of the Somali government in ’91 it seems that the absence of government has served them better than the improper policies of Barre’s government.

3. Economic Conditions before 1991 • Since they abandoned socialism in 1980 Somalia has had no clear plan for development. • Public sector policies during this period were very inefficient and led to wasted financial resources and foreign debt. • During 1989-90 the non-financial public sector deficit exceeded 30% of GDP, and the current account deficit of the balance of payments averaged 45% of GDP.

4. Crisis in public sector management • A major cause of economic crisis during the 1970’s and 1980’s was caused by poor financial management. • What were some major activities that caused problems in the financial sector? • A huge and very unproductive public investment program, inadequate recurrent expenditures on economic and social services, and corruption.

5. The neglected rural sector • During the 1970’s and 1980’s the rural sector suffered from unfriendly government policies. • The sector provided work for more than 80% of the population • The rural sector accounted for approximately 70% of the total labor force as well as 65% of total GDP. • In addition, the rural sector (in particular the agricultural industry) accounted for over 95% of total exports.

6. The neglected rural sector • If all this is true how did the rural sector become neglected? • WORLD AID! • The inflow of world aid (agricultural crops) which was intended for refugees of war often found itself in local markets. • As a result local farmers were not able to sell their crops resulting in a drastic decline in profit.

7. The Resilience of the Domestic Market After the State Collapsed • From the time the state collapsed to ’95 the domestic market was virtually free of regulations and bureaucratic controls. • Instead their were hundreds of independent traders who operated within a market with no rules or regulations.

8. Somali Currency One of the biggest surprises during this period was the continued value of the Somali currency. The Somali National Bank was looted and destroyed during the early part of the 1990’s which meant Somali currency had nothing backing it up. Despite this the Somali currency continued to hold weight and was eventually backed by the U.S. dollar which had entered Somali through black markets, exports, Foreign Aid, etc.

9. Conclusion • The informal market has become a useful tool for the private sector since the state collapsed. • The informal market has allowed Somali to sustain some sort of economic activity despite the extreme violence within the country. • I also concluded that economic growth will be difficult for many reasons. A primary reason is the lack of a strong government body which could provide public goods and assistance to the private sector.