Somalia

Economic Overview

The Federal Republic of Somalia is in a protracted state of reconstruction, grappling with the legacy of decades of civil war, ongoing security threats from al-Shabaab, and extreme vulnerability to climate shocks like droughts and floods. Its economy is highly informal, dollarized, and heavily dependent on external support, primarily remittances from its large diaspora and international aid. Despite these immense challenges, Somalia has a surprisingly resilient and entrepreneurial private sector, particularly in telecommunications and trade. The 2025-2026 outlook is for continued fragile recovery, contingent on maintaining political stability, security gains, and sustained international support.

GDP Size & Growth Trajectory

Somalia's economy is small and growth is fragile. The country's recent achievement of the Heavily Indebted Poor Countries (HIPC) Completion Point in late 2023 was a landmark event, unlocking significant debt relief and normalizing relations with international financial institutions. The IMF projects real GDP growth to be 3.7% in 2025. This growth is driven by the private sector and donor-funded investment but remains highly vulnerable to security and climate shocks.

Sector Composition

• Agriculture: This is the absolute backbone of the economy, contributing approximately 60% of GDP and employing the majority of the population. The sector is dominated by livestock, with exports of camels, sheep, and goats to the Gulf states being the single largest source of export earnings. The sector is extremely vulnerable to drought.
• Services: The services sector accounts for about 30% of GDP and is a surprising bright spot. It is led by a highly competitive telecommunications sector, wholesale and retail trade, and financial services (primarily money transfer businesses).
• Industry: The industrial sector is negligible, contributing less than 10% to GDP, and consists mainly of small-scale construction.

Inflation Trends

Inflation is volatile, heavily influenced by food prices, which are impacted by climate shocks, and the price of imported goods. The Central Bank of Somalia is re-establishing its capacity to conduct monetary policy, but its tools are limited in a highly dollarized economy.

Fiscal & Monetary Policy Stance

• Monetary Policy: The Central Bank of Somalia (CBS) is working to reintroduce a national currency and strengthen its regulatory oversight, but the US dollar remains the de facto currency for most transactions.
• Fiscal Policy: The government is almost entirely dependent on grants from international partners to finance its budget. A key priority under the post-HIPC framework is to improve domestic revenue mobilization, particularly through customs duties and sales taxes.

Table 1: Key Macroeconomic Indicators (2023-2026F)

Market Size & Demand Potential

The domestic market is limited by widespread poverty and instability, but the telecommunications and mobile money sectors demonstrate significant latent potential.

Population Size and Demographics

Somalia has a young and rapidly growing population of over 18 million. This demographic potential is severely constrained by conflict, displacement, and extremely low human development indicators.

Urbanization and Consumer Hubs

The capital city, Mogadishu, is the main political and economic hub, but it faces significant security challenges. Other important regional cities include Hargeisa (in the self-declared republic of Somaliland) and Bossaso (in Puntland).

Business Environment

The business environment in Somalia is one of the most challenging in the world, defined by insecurity, a lack of formal institutions, and near-total reliance on informal or customary mechanisms.

Ease of Doing Business & Regulatory Reforms

Somalia ranks at the very bottom of all global ease of doing business indices. There are no effective, centralized institutions for business registration or investor protection. Business operations rely heavily on trust-based networks, clan affiliations, and informal legal systems.

Political Stability & Governance

Decades of civil war have left Somalia with a fragmented and fragile political system.

Political Environment

The country is a federal parliamentary republic, but the federal government's authority is limited and often contested by federal member states and the breakaway region of Somaliland. The primary challenge to stability is the ongoing insurgency by the al-Shabaab militant group, which controls significant territory in the south and central parts of the country. A major military offensive, supported by the African Union Transition Mission in Somalia (ATMIS), is ongoing.

Rule of Law & Investor Protection

There is no effective, unified rule of law. The formal judicial system is weak, and most disputes are resolved through customary or religious law. There is no formal protection for foreign investors.

Infrastructure Readiness

Public infrastructure is either non-existent or has been destroyed by decades of conflict.

Transport and Logistics

The road network is in a state of extreme disrepair. The Port of Mogadishu is the country's main gateway but is inefficient and requires significant modernization. Ports in other regions, like Berbera (Somaliland), are being developed with foreign investment and are emerging as important regional trade hubs.

Energy Sector

Access to electricity is extremely low. Power is primarily supplied by small-scale, private, diesel-based providers, resulting in some of the highest electricity costs in the world.

Telecommunications: The Resilient Sector

In stark contrast to the rest of its infrastructure, Somalia has a highly competitive and surprisingly advanced telecommunications sector. Driven by private companies in a stateless environment, it offers some of the cheapest mobile data rates in Africa. This sector is the backbone of the economy, enabling the massive flow of remittances and the widespread use of mobile money, which is the primary payment system in the country.

Sector-Specific Opportunities

Given the extreme security and political risks, investment is almost exclusively limited to development projects funded by international partners or high-risk ventures by diaspora members.

1. Telecommunications and Mobile Money

This is the only truly thriving sector. The widespread adoption of mobile money presents opportunities for layering other digital services (like micro-insurance or credit) on top of existing platforms.

2. Livestock and Fisheries

In a more stable environment, there is potential to formalize and expand the livestock export trade. The country's long coastline also offers significant potential for a sustainable fisheries industry.

3. Renewable Energy (Solar)

The high cost of diesel-generated electricity creates a strong business case for solar power, particularly for off-grid and distributed energy solutions for businesses and urban centers.